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Government Finance Officers Association | DECEMBER <strong>2023</strong><br />
The potential of<br />
neurodiversity<br />
employment<br />
Government Finance Review<br />
How incentives and<br />
consequences can<br />
shape behavior<br />
Robotic process<br />
automation in action<br />
AWARDS FOR EXCELLENCE<br />
I N G O V E R N M E N T F<br />
I N A N C E<br />
Rising Above<br />
the Field<br />
The winners of this year’s Awards for Excellence<br />
exemplify how governments can innovate,<br />
grow stronger, and provide examples for others.
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contents DECEMBER<br />
<strong>2023</strong> | VOLUME 39, NUMBER 6<br />
<strong>2023</strong><br />
AWARDS<br />
for<br />
EXCELLENCE<br />
IN GOVERNMENT FINANCE<br />
AWARDS FOR EXCELLENCE<br />
CITY OF MONROVIA, CALIFORNIA<br />
I N G OV E R N M E N T F<br />
I N A N C E<br />
GUILFORD COUNTY, NORTH CAROLINA<br />
COVER ILLUSTRATION: ©<strong>2023</strong> LEO ACADIA C/O THEISPOT.COM<br />
TOWN OF FULTON, TEXAS<br />
VERMONT BOND BANK<br />
14<br />
<strong>2023</strong> GFOA Awards<br />
for Excellence in<br />
Government Finance<br />
We celebrate the six winners of<br />
this year’s Award for Excellence<br />
for their creative solutions<br />
to common challenges,<br />
commitment to GFOA best<br />
practices and outstanding<br />
financial management.<br />
By Jara Kern<br />
TRI-COUNTY METROPOLITAN<br />
TRANSPORTATION DISTRICT OF OREGON<br />
TOWN OF PECOS CITY, TEXAS<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 1
contents<br />
36<br />
Brain Power<br />
The why and how of<br />
neurodiversity employment<br />
in local government<br />
By Anthony Pacilio and<br />
Matthew Peters<br />
40<br />
Incentives &<br />
Consequences<br />
Are you setting your<br />
team up for success?<br />
By Kate Zabriskie<br />
44<br />
Persistence Pays Off<br />
How a decade of risk-aware<br />
reserves management<br />
has benefited the City of<br />
Sharonville, Ohio<br />
By Shayne Kavanagh and<br />
Scott McKeehan<br />
50<br />
Robots Record Our Revenue<br />
How the Washtenaw County,<br />
Michigan, Treasurer’s Office used<br />
robotic process automation to save<br />
time, reduce errors and improve the<br />
timeliness of financial reporting.<br />
By Catherine McClary<br />
©<strong>2023</strong> ALEX NABAUM C/O THEISPOT.COM<br />
2
STATEMENT OF OWNERSHIP, MANAGEMENT, AND CIRCULATION<br />
6 Contributors<br />
8 From the CEO<br />
10 Rewind: A Look Back at <strong>GFR</strong><br />
in May 1965<br />
11 GFOA Works with Aon to<br />
Help Local U.S. Governments<br />
Mitigate Natural Disaster Risk<br />
12 GFOA’s Fiscal Fluency Challenge<br />
13 GFOA Launches Online<br />
Academic Journal<br />
55 Strategy and Evaluation Leads to<br />
Trust and Better Decision-Making<br />
By Adam Powell<br />
58 Accounting and Financial Reporting<br />
When Multiple Governments Within<br />
One Financial Reporting Entity<br />
Are a Single Employer for a PEB Plan<br />
By Michele Mark Levine, Todd Buikema,<br />
and Susannah Filipovic<br />
62 The Importance of Protecting<br />
Auditor Independence<br />
By Katherine Barrett & Richard Greene<br />
64 Financial Intelligence through<br />
Artificial Intelligence<br />
By Justin Marlowe<br />
66 Interview with Chris Forster,<br />
assistant town manager for the<br />
Town of Bluffton, South Carolina<br />
By Mike Mucha<br />
72 10 Steps to Implementing<br />
Position Control<br />
66<br />
1 Publication Title: Government Finance Review<br />
2 Publication Number: 3681-20<br />
3 Filing Date: September 30, <strong>2023</strong><br />
4 Issue Frequency: Bimonthly (February, April, June, August, October, <strong>December</strong>)<br />
5 Number of Issues Published Annually: Six<br />
6 Annual Subscription Price: $35<br />
7 Complete Mailing Address of Known Office of Publication: Government Finance Officers<br />
Association, 203 N. LaSalle St., Suite 2700, Chicago, IL 60601<br />
8 Complete Mailing Address of Headquarters or General Business Office of Publisher:<br />
Government Finance Officers Association, 203 N. LaSalle St., Suite 2700, Chicago, IL 60601<br />
9 Full Names and Complete Mailing Addresses of Publisher, Editor, and Managing Editor:<br />
Publisher: Chris Morrill, CEO, Government Finance Officers Association, 203 N. LaSalle<br />
St., Ste. 2700, Chicago, IL 60601; Editor: Michael J. Mucha, Director, Government Finance<br />
Officers Association, 203 N. LaSalle St., Ste. 2700, Chicago, IL 60601; Managing Editor:<br />
Marcy Boggs, Government Finance Officers Association, 203 N. LaSalle St., Ste. 2700,<br />
Chicago, IL 60601<br />
10 Owner: Government Finance Officers Association<br />
Complete Mailing Address: 203 N. LaSalle St., Ste. 2700, Chicago, IL 60601-1210<br />
11 Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or<br />
More of Total Amount of Bonds, Mortgages, or Other Securities: None<br />
12 Tax Status: Has Not Changed During Preceding 12 Months<br />
13 Publication Title: Government Finance Review<br />
14 Issue Date for Circulation Data Below: August <strong>2023</strong><br />
15 Extent and Nature of Circulation:<br />
Average No.<br />
Copies Each<br />
Issue During<br />
Preceding 12<br />
Months<br />
No. Copies of<br />
Single Issue<br />
Published<br />
Nearest to<br />
Filing Date<br />
a. Total Number of Copies (Net press run) 23,612 24,202<br />
b. Paid<br />
Circulation<br />
(By Mail and<br />
Outside the<br />
Mail)<br />
(1) Mailed Outside-County Paid Subscriptions<br />
Stated on PS Form 3541 (Include<br />
paid distribution above nominal rate,<br />
advertiser’s proof copies, and exchange<br />
copies)<br />
(2) Mailed In-County Paid Subscriptions Stated<br />
on PS Form 3541 (Include paid distribution<br />
above nominal rate, advertiser’s proof<br />
copies, and exchange copies)<br />
(3) Paid Distribution Outside the Mails<br />
Including Sales Through Dealers and<br />
Carriers, Street Vendors, Counter Sales, and<br />
Other Paid Distribution Outside USPS®<br />
(4) Paid Distribution by Other Classes of Mail<br />
Through the USPS (e.g., First-Class Mail®<br />
417 404<br />
22,356 23,404<br />
c. Total Paid Distribution [Sum of 15b (1), (2), (3), and (4)] 23,808 23,772<br />
d. Free or<br />
Nominal Rate<br />
Distribution<br />
(By Mail and<br />
Outside the<br />
Mail)<br />
(1) Free or Nominal Rate Outside-County Copies<br />
included on PS Form 3541<br />
(2) Free or Nominal Rate In-County Copies<br />
Included on PS Form 3541<br />
(3) Free or Nominal Rate Copies Mailed at Other<br />
Classes Through the USPS (e.g., First-Class<br />
Mail)<br />
(4) Free or Nominal Rate Distribution Outside<br />
the Mail (Carriers or other means)<br />
e. Total Free or Nominal Rate Distribution [Sum of 15d (1), (2), (3)<br />
and (4)]<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
n/a<br />
416 414<br />
416 414<br />
f. Total Distribution (Sum of 15c and 15e) 23,131 23,818<br />
g. Copies not Distributed (See Instructions to Publishers #4<br />
(page #3))<br />
481 384<br />
h. Total (Sum of 15f and g) 23,131 24,202<br />
i. Percent Paid (15c divided by 15f times 100) 99% 99%<br />
16 Electronic Copy Circulation:<br />
a. Paid Electronic Copies n/a n/a<br />
b. Total Paid Print Copies (Line 15c) + Paid Electronic Copies<br />
(Line 16a)<br />
c. Total Print Distribution (Line 15f) + Paid Electronic Copies<br />
(Line 16a)<br />
d. Percent Paid (Both Print & Electronic Copies) (16b divided<br />
by 16c x 100)<br />
23,808 23,773<br />
23,131 23,818<br />
99% 99%<br />
17 Publication of Statement of Ownership: If the publication is a general publication, publication<br />
of this statement is required. Will be printed in the <strong>December</strong><strong>2023</strong> issue of this publication.<br />
18 Signature and Title of Editor, Publisher, Business Manager, or Owner<br />
Marcy Boggs: I certify that all information furnished on this form is true and complete.<br />
I understand that anyone who furnishes false or misleading information on this form or who<br />
omits material or information requested on the form may be subject to criminal sanctions<br />
(including fines and imprisonment) and/or civil sanctions (including civil penalties).<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 3
Publisher<br />
Chris Morrill<br />
Editor in Chief<br />
Michael J. Mucha<br />
Managing Editor<br />
Marcy Boggs<br />
GOVERNMENT FINANCE REVIEW<br />
www.gfoa.org/gfr<br />
EDITORIAL<br />
gfr@gfoa.org<br />
ADVERTISING<br />
gfoa.org/gfr-ads<br />
PERMISSION & REPRINTS<br />
gfr@gfoa.org<br />
CHANGE OF ADDRESS<br />
gfoa.org/update-membership<br />
SUBSCRIPTIONS<br />
gfoa.org/gfr<br />
SUBMISSIONS<br />
GFOA encourages finance officers, scholars,<br />
private consultants, and other knowledgeable<br />
individuals to submit manuscripts to <strong>GFR</strong>.<br />
All manuscripts should conform to the Editorial<br />
Policy and Guidelines for Authors, which are<br />
available online at gfoa.org. Manuscripts should<br />
be submitted electronically to gfr@gfoa.org.<br />
CONTACT<br />
Government Finance Review<br />
c/o Government Finance Officers Association<br />
203 N. LaSalle Street, Suite 2700<br />
Chicago, Illinois 60601-1210<br />
Phone: 312-977-9700<br />
Fax: 312-977-4806<br />
GFOA EXECUTIVE BOARD<br />
Laura Allen<br />
President<br />
Maryland Department of<br />
Budget and Management, MD<br />
Terri Velasquez<br />
Past President<br />
City of Aurora, CO<br />
Tanya Garost<br />
President-Elect<br />
City of Martensville, SK<br />
Sonya Andrews<br />
City of Scottsdale, AZ<br />
Lunda Asmani<br />
Norwalk Public Schools, CT<br />
Jennifer Brown<br />
City of Sugar Land, TX<br />
Timothy Ewell<br />
County of Contra Costa, CA<br />
Edwin Gin<br />
Bruce H. Fisher<br />
Nova Scotia Utility and<br />
Review Board, NS<br />
Jason Greene<br />
City of Miami Beach, FL<br />
Anne P. Harty<br />
City of Rock Hill, SC<br />
Sue Iverson<br />
City of Red Wing, MN<br />
Grace Martinez<br />
Metropolitan Transportation<br />
Commission, CA<br />
Debra Roberts<br />
Maryland Teachers & State<br />
Employees Supplemental<br />
Retirement Plans, MD<br />
David P. Schmiedicke<br />
City of Madison, WI<br />
Kendel Taylor<br />
City of Alexandria, VA<br />
Diane Waldron<br />
City of Bristol, CT<br />
Chris Morrill<br />
GFOA<br />
<strong>GFR</strong> (Government Finance Review) (ISSN 0883-7856) is published bimonthly in February, April, June, August, October, and <strong>December</strong>.<br />
Subscription price is $35 annually. Opinions expressed herein are the viewpoints of the authors. They may differ from the policies and<br />
recommendations of the Government Finance Officers Association, its committees, and staff. Letters to the editor are welcomed.<br />
Copyright <strong>2023</strong> by the GFOA. Published by the Government Finance Officers Association, 203 N. LaSalle Street, Suite 2700, Chicago,<br />
IL 60601-1210. Periodicals postage paid at Chicago, Illinois, and additional mailing office. Postmaster: Please send address changes<br />
to Government Finance Review, 203 N. LaSalle Street, Suite 2700, Chicago, IL 60601-1210.<br />
4
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+<br />
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Brian Caputo, Ph.D., CPFO, President, College of DuPage, IL<br />
Cerrficaaon. Career. Community.<br />
Start your own cerrficaaon<br />
journey today at<br />
gfoa.org/cpfo
CONTRIBUTORS<br />
Shayne Kavanagh is the senior manager of research for GFOA. He started GFOA’s long-term financial planning and<br />
policy consulting offering in 2002 and has been working with governments on financial planning and policies ever<br />
since. Most recently, Kavanagh has pioneered the use of computer simulation to “stress test” the long-term financial<br />
position of local governments. He is also the author of a number of influential publications on financial planning<br />
and budgeting. His work has earned him a fellowship with the National Academy of Public Administration, a<br />
position on the board of advisors for the University of Chicago’s Center for Municipal Finance, and recognition as<br />
one of the 100 most influential people in local government by Engaging Local Government Leaders.<br />
Jara Kern is a writer and marketing strategist with Right Angle Studio, a Chicago-based graphic design firm.<br />
For this issue of Government Finance Review, she interviewed representatives from the governments and<br />
organizations that have been recognized with <strong>2023</strong> GFOA Awards for Excellence. Kern holds an MBA from the<br />
University of Wisconsin-Madison and an undergraduate degree in classical music performance from the Oberlin<br />
Conservatory of Music at Oberlin College.<br />
Catherine McClary is the treasurer of Washtenaw County, Ann Arbor, Michigan. She is also a member of the<br />
GFOA Committee on Treasury & Investment Management. McClary was involved in the effort to implement<br />
robotic process automation to Washtenaw County and was recognized with 2022 GFOA Award for Excellence.<br />
She has served as president of the Michigan GFOA Board of Directors, and last year received GFOA’s Hero Award.<br />
If you have questions about Treasury initiatives, email the office at taxes@washtenaw.gov.<br />
M. Scott McKeehan, CPA, is the finance director for the City of Sharonville, Ohio. He is responsible for maintaining<br />
the city’s budget management, general ledger, accounts payable and receivable, and debt management, and for<br />
managing the city’s investment portfolio. Over the 11 years he’s served in this role, the city has overcome a capital<br />
backlog stemming from the Great Recession while meeting fund balance goals. Prior to joining the team at the city,<br />
McKeehan worked 12 years at the Ohio Auditor of State office.<br />
Anthony Pacilio, vice president of CAI Neurodiverse Solutions, is recognized domestically and internationally<br />
as an expert in neurodiverse employment. He specializes in advancing neurodiversity programs and leads the<br />
global expansion efforts of Neurodiverse Solutions at CAI. As the previous vice president and global head of<br />
autism at work for JPMorgan Chase & Co., Pacilio brings a wealth of experience to CAI Neurodiverse Solutions.<br />
He has expertise in managing neurodiversity recruiting efforts, developing candidate pipelines, and ensuring<br />
best practices for onboarding support, training, and organizational success. Throughout his career, he has<br />
held technical and commercial roles at MBNA America, Bank of America, and CIGNA.<br />
Matthew Peters is chief technology officer for CAI Neurodiverse Solutions, where he is responsible for enterprise<br />
technology, infrastructure, security operations, and all technical consulting practices. Peters provides strong<br />
leadership across the enterprise and ensures that all CAI technology stacks are modernized and prepared for the<br />
company’s planned future growth and scale, and he continuously searches for new, innovative ideas. Peters has<br />
served in other roles at CAI, including vice president of technology, executive director of intelligent automation,<br />
and co-director of CAI Labs; he was also responsible for product development and technical consulting services.<br />
Kate Zabriskie is the president of Business Training Works, Inc., a Maryland-based talent development firm.<br />
She has consulted with organizations large and small to help define their cultures; articulate their missions,<br />
visions, and values; and align their employees’ performance with strategic goals and objectives. She and her<br />
team provide onsite, virtual, and online soft-skills training courses and workshops to clients in the United<br />
States and internationally. Clients have included Georgetown University, the U.S. Coast Guard, and Microsoft.<br />
6
In-Person Training<br />
Join GFOA in Minnesota<br />
Featured Courses:<br />
Budget Academy, April 8–11<br />
Overview of Public Procurement, April 8–9<br />
Intermediate Governmental Accounnng, April 8–9<br />
Advanced Governmental Accounnng, April 10–11<br />
Best Praccces in Debt Issuance and Management, April 10–11<br />
gfoa.org/events
FROM THE CEO<br />
Christopher P. Morrill<br />
Executive Director/CEO<br />
F<br />
or many GFOA staff members,<br />
November marked the point<br />
when we could start officially<br />
looking forward to 2024.<br />
On November 3, we started<br />
taking registrations for our 2024 Orlando<br />
Annual Conference. While preparations<br />
for sessions, event spaces, technology,<br />
promotions, and logistics began months<br />
ago, now we find it hard not to get excited.<br />
Early registration numbers are strong,<br />
and we’re expecting one of the largest<br />
GFOA conferences ever. Not only is<br />
Orlando, Florida, a destination city with<br />
many attractions beyond the convention<br />
center, but the conference itself will also<br />
feature case studies from innovative and<br />
leading governments, sessions led by<br />
leading practitioners, updates on current<br />
issues, can’t-miss networking events,<br />
access to hundreds of exhibitors, and<br />
thought-provoking keynote speakers. We<br />
look forward to letting you know about all<br />
our plans in the months to come.<br />
And there are other reasons why 2024<br />
will be an important year for GFOA. We’re<br />
making plans to update our membership<br />
Saying Goodbye to <strong>2023</strong><br />
and Wishing You a Happy 2024<br />
model that will increase the size of GFOA<br />
and open the association up to finance<br />
professionals throughout a member<br />
organization. Our research shows us<br />
that in many organizations, only the<br />
most senior positions within the finance<br />
office hold official memberships. While<br />
many benefits of GFOA membership (like<br />
<strong>GFR</strong>) can be shared, others—like access<br />
to our GFOA communities—cannot.<br />
We expect this change to make GFOA’s<br />
network bigger, and it will also provide<br />
opportunities for professionals much<br />
earlier in their careers to benefit from<br />
education, networking, mentorship, and<br />
other resources from GFOA.<br />
Our plans for 2024 are rooted in a<br />
successful <strong>2023</strong>, when we were once<br />
again able to increase both our individual<br />
and organization memberships. GFOA<br />
award program participation remains<br />
strong, registration for both in-person and<br />
virtual learning opportunities continues<br />
to grow—capped by the 5,000 individuals<br />
who signed up for our mid-<strong>December</strong><br />
GAAP Update—and engagement in GFOA’s<br />
affinity groups and online communities<br />
We look forward to working<br />
with you in pursuit of our<br />
shared mission to advance<br />
excellence in public finance.<br />
is at an all-time high. And GFOA has made<br />
other accomplishments over the past<br />
year in each of our major program areas:<br />
• Leading our peer organizations in<br />
advocating for local governments on<br />
infrastructure funding and financial<br />
data transparency.<br />
• Completing the rollout of our<br />
awards management system for the<br />
Distinguished Budget Presentation<br />
Award.<br />
• Completing our revised CPFO program<br />
with all seven tests now available.<br />
• Hosting more than 5,600 delegates and<br />
exhibitors in Portland for our <strong>2023</strong><br />
annual conference.<br />
8
©<strong>2023</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
• Providing consulting services to more<br />
than 65 governments to assist with<br />
areas including ERP readiness, system<br />
selection, and implementation;<br />
business process improvement; and<br />
financial policy development.<br />
• Returning to a full schedule of<br />
in-person training events, which<br />
now feature regular offerings in our<br />
upgraded training facility in Chicago.<br />
• Launching the LGBTQIA+ Caucus.<br />
• Working with our partners at the<br />
International Association of Fire<br />
Chiefs (IAFC) to provide educational<br />
sessions that improve collaboration<br />
with our finance peers in the fire<br />
service.<br />
• Producing research reports that<br />
highlight decision architecture,<br />
budgeting for equity, reserve policies,<br />
public engagement, and fiscal fluency.<br />
• Publishing Accounting for Capital<br />
Assets. GFOA’s most recent publication<br />
is also available for sale as an e-book<br />
on the Amazon and Apple platforms.<br />
We’re also thankful to have so many<br />
dedicated and engaged volunteers<br />
who provide guidance on standing<br />
committees, participate in award<br />
reviews and research projects, and<br />
serve as instructors, authors, mentors,<br />
and leaders for this organization. If<br />
you are interested in getting more<br />
involved with GFOA, please visit<br />
GFOA.org/volunteer for a listing of<br />
current volunteer opportunities. If<br />
you’re interested in joining GFOA’s<br />
executive board, we’ll be accepting<br />
applications for the 2024 to 2026<br />
board term through February 2 at<br />
gfoa.org/executive-board-application.<br />
Thank you again for the service<br />
you provide to GFOA and to your<br />
community. We look forward to<br />
working with you in pursuit of our<br />
shared mission to advance excellence<br />
in public finance.<br />
Happy holidays and happy new year,<br />
Registration is now open for our 2024<br />
Annual Conference in Orlando. Register<br />
by January 26 to save:<br />
gfoa.org/conference<br />
Get involved! View our current volunteer<br />
opportunities:<br />
gfoa.org/volunteer<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 9
ewind<br />
Instituting Real Estate Tax Collection Procedures<br />
A look back at <strong>GFR</strong> from May 1965<br />
The May 1965 issue of<br />
Municipal Finance (a<br />
stop in the magazine’s<br />
evolution into <strong>GFR</strong>) began<br />
with an article listing<br />
methods of collecting<br />
delinquent real estate taxes, focusing<br />
on the system Cook County, Illinois,<br />
had put in place the year before.<br />
The collection process was not robust<br />
(compared to 96 percent now). Penalties<br />
were being put in place for failure to pay<br />
on time, including potentially losing the<br />
property, but delinquency remained a<br />
serious problem. The article presented<br />
some methods of collecting unpaid real<br />
estate taxes and evaluated their efficacy.<br />
“The basic procedure for collecting<br />
delinquent real estate taxes in Illinois<br />
was developed during the territorial<br />
period,” according to the article. “This<br />
procedure was hardly changed until the<br />
1930s and 1940s, when it was modified<br />
to cope with the staggering amount of<br />
tax delinquency then current, as well<br />
as the growing number of chronically<br />
tax-delinquent parcels of property.”<br />
Tax delinquency dates. The tax lien<br />
of the state was attached to the real<br />
estate on January 1, with the tax lien<br />
becoming delinquent for the first<br />
installment of May 1, and on September<br />
1 for the second installment.<br />
Notice to tax-delinquent owners.<br />
The county collector was required<br />
to publish its intent to seek a tax<br />
judgment and an order to sell had to be<br />
published in a newspaper at least ten<br />
days before judgment was sought.<br />
The tax judgment. All applications<br />
for judgment and orders of sale were<br />
to be made at a specific time (during<br />
October) in Cook County. The county<br />
court examined the delinquency<br />
list and determined the matter in a<br />
summary manner without pleadings.<br />
The tax sale. The tax lien was offered<br />
at public auction, with a maximum<br />
penalty bid of 12 percent of the unpaid<br />
taxes per semiannual period.<br />
Methods of handling forfeited real<br />
estate. Seven procedures were available<br />
for collecting taxes on real estate that<br />
was forfeited to the state. Forfeiture<br />
didn’t mean the state owned the<br />
property, just that the taxes hadn’t been<br />
paid by either the owner or a tax buyer.<br />
1. The forfeiture sale. Forfeited tax liens<br />
could be offered at future tax sales<br />
or purchased by anyone applying to<br />
the county clerk for a tax certificate<br />
of sale after payment of all taxes due<br />
was made to the county collector.<br />
2. The civic-action-in-debt. The county<br />
board could file a civil suit for the<br />
total amount of the unpaid taxes.<br />
3. The “Three Officer Plan.” Whenever<br />
real estate taxes equal or exceed the<br />
value of the property, the county<br />
judge, county clerk, and county<br />
treasurer could approve its sale<br />
to the highest cash bidder. (This<br />
procedure was rarely used.)<br />
4. The tax foreclosure sale. The tax<br />
lien on forfeited property tax could be<br />
foreclosed in equity. When tax liens<br />
had been forfeited to the state for two<br />
or more years, they could be sold as<br />
ordered by the court. (This was the<br />
most commonly used procedure.)<br />
5. Receivership. Income-producing real<br />
estate that had been tax-delinquent<br />
for six months or more could be<br />
brought under the receivership of the<br />
county collector and remain under<br />
receivership until the rents, issues, and<br />
income taken from the management<br />
of the property satisfied the taxes due<br />
plus penalties and costs.<br />
6. The Scavenger Act. Real estate that<br />
had remained tax-delinquent for ten<br />
or more years could be sold at a public<br />
auction to the highest bidder for cash.<br />
(This procedure had never been used<br />
as of 1965.)<br />
7. The Blighted Vacant Areas<br />
Development Act. Private developers<br />
could acquire chronically taxdelinquent<br />
or otherwise encumbered<br />
real estate through the power of<br />
eminent domain, if the land was to be<br />
used for development and construction<br />
of housing units, public or private.<br />
“Government officials have met with<br />
much success by using foreclosure sales to<br />
reduce tax forfeitures 75 percent between<br />
1942 and 1961,” according to the article.<br />
10
In Brief<br />
PARTNERSHIPS | RESEARCH | RESOURCES<br />
PARTNERSHIPS<br />
GFOA Works with Aon to Help Local<br />
Governments Mitigate Natural Disaster Risk<br />
GFOA is teaming with<br />
Aon plc, a leading global<br />
professional services<br />
firm, on a first-of-its-kind<br />
initiative to provide local<br />
U.S. governments with state-of-the<br />
art tools to help them better analyze<br />
and plan their rainy day funds.<br />
Local government rainy day funds<br />
are critical for managing exposure to<br />
risks like economic downturns and<br />
natural disasters. According to a recent<br />
report from the National Oceanic<br />
and Atmospheric Administration<br />
(NOAA), the United States experienced<br />
18 billion-dollar disasters in 2022,<br />
totaling more than $165 billion in<br />
damage. The frequency of these costly<br />
disasters has been increasing in<br />
recent years, and the trend is likely to<br />
continue into the foreseeable future.<br />
When planning for potential<br />
disasters, local governments<br />
perennially ask themselves how much<br />
is enough to keep in the rainy day fund.<br />
To help answer this question, GFOA<br />
contracted with Aon to acquire access<br />
to data on natural disaster exposure<br />
in local communities, enabling GFOA<br />
to build risk models with comparable<br />
analytical techniques that insurance<br />
companies use to develop coverages.<br />
GFOA stores the data in a unique<br />
open standard, developed by<br />
ProbabilityManagement.org, a GFOA<br />
partner. This allows the data to be<br />
easily integrated into Microsoft Excel,<br />
providing users with full access to the<br />
range of Aon’s insights.<br />
In fact, Aon and GFOA have already<br />
completed a successful pilot of this<br />
project, using Aon’s data to build a<br />
risk model. “The City of Providence,<br />
Rhode Island, had a Rainy Day Fund<br />
Ordinance that had become antiquated<br />
and in need of update. As part of<br />
Results for America’s City Budgeting<br />
for Equity and Recovery program, we<br />
worked with GFOA to analyze what<br />
our reserve levels should be, create a<br />
comprehensive fund balance policy,<br />
and update the Rainy Day Ordinance.<br />
The team at GFOA was incredibly<br />
helpful and the data provided by Aon<br />
was critical in building the risk model<br />
we used for analysis. Using the model,<br />
we were able to create a fund balance<br />
policy that will protect our taxpayers<br />
against future economic shocks and<br />
protect its most vulnerable residents,”<br />
said Krystle Lindberg, deputy finance<br />
director and budget officer for the City<br />
of Providence.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 11
IN BRIEF<br />
“Working with risk strategy leader<br />
Aon will help us to accelerate our support<br />
of finance officers as they develop<br />
stronger rainy-day funds to protect<br />
their communities,” said Chris Morrill,<br />
GFOA’s chief executive officer.<br />
Liz Henderson, global head of<br />
climate for Aon’s Reinsurance Solutions,<br />
said: “Our data and analytics will enable<br />
state and local governments to navigate<br />
the volatility from natural disasters<br />
and climate change while providing<br />
the insights needed to shape better, moreinformed<br />
decisions. This initiative adds to<br />
Aon’s growing suite of climate analytics<br />
through a series of collaborations with<br />
leading academic institutions.”<br />
GFOA has a number of resources<br />
available now to help provide information<br />
on using risk based analysis. Please visit<br />
gfoa.org/risk-analysis to view research<br />
papers and best practices, explore case<br />
studies, and download sample models.<br />
This issue of <strong>GFR</strong> also contains an article<br />
highlighting the City of Sharonville’s<br />
approach to risk-aware management of<br />
reserves. GFOA’s consulting work with<br />
local governments has revealed that<br />
there are many opportunities for reserve<br />
optimization beyond the guidance<br />
provided by GFOA’s existing best practice.<br />
Should we rethink reserves? A recent<br />
GFOA research paper available on GFOA’s<br />
website brings together lessons learned<br />
from our members with university<br />
research to provide strategies for how<br />
local governments can get the most<br />
value from their reserve strategies.<br />
Read the research report:<br />
gfoa.org/materials/rethinkingreserves<br />
RESEARCH<br />
GFOA’s Fiscal Fluency<br />
Challenge<br />
Numbers are at the core of a public finance officer's job, and a big part<br />
of the job is communicating those numbers to other people. But<br />
many members of a finance officer’s audience don’t speak numbers<br />
as a first language.<br />
Numbers are abstract concepts. Abstractions require effortful<br />
thinking—which is why young children are taught to count objects, like fingers<br />
and toes, making the numbers more concrete. The numbers that public finance<br />
officers need to communicate often go well beyond what can be accommodated<br />
by fingers and toes; however, we can take a cue from childhood and transform<br />
numbers into human experience.<br />
GFOA is looking for outstanding examples of good communication of financial<br />
information using the principles described in our research report, “Fiscal Fluency<br />
Made Easy.” This could be a PowerPoint, a report, a video of the presentation<br />
being given at a meeting of the elected board, or whatever medium you think<br />
best captures how you’ve used the ideas of Fiscal<br />
Fluency. If you can also provide evidence that your<br />
presentation was effective in achieving the goals<br />
of the presentation, that increases your chances<br />
of winning! The Grand Prize is an all-expenses<br />
paid trip to GFOA's 118th Annual Conference in<br />
Orlando, Florida, June 9-12, 2024.Entries must be<br />
submitted by January 15, 2024.<br />
A Checklist for Fiscal Fluency<br />
Read the research report:<br />
gfoa.org/materials/fiscalfluency<br />
Join the Fiscal Fluency Challenge:<br />
gfoa.org/fiscalfluency<br />
The principles below are designed to help communicate with the fiscal fluency<br />
necessary for productive conversations and good decisions about public finance.<br />
Understand the limits of rationality. Human thinking is more automatic<br />
and less rational than we may think, often leading to an overestimation of<br />
people’s ability to grasp numbers. The presentation of numbers must be mindful<br />
of those limits.<br />
Translate numbers to human scale. Break numbers down to a level that people<br />
can easily relate to. For example, rather than using the total amount of money the<br />
public would pay for a new tax, show the impact per household.<br />
Help people grasp the numbers. Compare the numbers to those of familiar items<br />
and events in people’s lives. For example, compare the cost of a public service to<br />
the cost of consumer goods or services people are familiar with.<br />
Catalyze action with emotional numbers. When it is important to catalyze<br />
action, fuse the logic of numbers with a presentation that engages the emotions of<br />
the audience. For example, there might be opportunities to relate the numbers to<br />
something the audience will personally experience.<br />
Build a scale model. Use geospatial information on maps to help people visualize<br />
the impact of numbers on their communities.<br />
12
RESOURCES<br />
GFOA Launches Online Academic Journal<br />
GFOA is developing an<br />
online academic journal<br />
for peer-reviewed articles<br />
and research that<br />
examines and analyzes<br />
contemporary issues in budgeting and<br />
finance and explores potential solutions.<br />
GFOA and the Public Finance Journal are<br />
thrilled to announce cash awards for<br />
answering long-standing public finance<br />
questions.<br />
Public Finance Journal<br />
The Public Finance Journal will be<br />
published twice a year, creating a forum<br />
for finance officers to discuss significant<br />
issues that advance our scientific<br />
understanding. Articles will focus on<br />
originality, importance, interdisciplinary<br />
interest, timeliness, and accessibility,<br />
connecting the science with the practice<br />
in public budgeting and finance.<br />
The publication will address the<br />
needs and interests of academics and<br />
government finance leaders connected<br />
with the local or national academic<br />
community—that is, both public<br />
finance’s scientific and practitioner<br />
communities. Public Finance Journal<br />
will publish significant advances in the<br />
science of public finance that are both<br />
timely and of theoretical importance.<br />
The journal’s guiding principles are:<br />
• Public Finance Journal is an open<br />
access journal that is committed to<br />
the community of practice.<br />
• All articles published adhere to the<br />
standards of peer review and the<br />
ethical standards of the Committee<br />
on Publication Ethics.<br />
• The journal encourages the posting<br />
of open data and methods for all<br />
articles published.<br />
• Both replications and manuscripts<br />
with null results are important to the<br />
scientific process.<br />
GovFi Prize<br />
What if there were resources to support,<br />
recognize, and reward academic writing<br />
in public finance? There now is such<br />
financial resourcing for four specific<br />
questions. GFOA and Public Finance<br />
Journal will provide $500 in start-up<br />
funding for proposals that address one<br />
of the four initial proposals for each<br />
question below. The total prize amount<br />
available for each of the four questions<br />
is $8,000. The non-winning articles<br />
may also be published in the Public<br />
Finance Journal. In fact, GFOA would<br />
prefer to publish articles from multiple<br />
researchers on the same question—<br />
social science is hard and answers from<br />
research are rarely definitive, so having<br />
multiple perspectives on the same<br />
question is helpful.<br />
Question 1: Is the 80-20 Rule Operative<br />
for Financial Analysts’ Use of Financial<br />
Reports?<br />
The 80-20 rule says that 80 percent of<br />
outcomes result from 20 percent of all<br />
causes. Applied to financial reporting,<br />
this could mean that some fraction of the<br />
information contained in the financial<br />
report satisfies the vast majority of the<br />
questions professional analysts (for<br />
example, those who perform analysis as/<br />
for bond market participants) have about<br />
a local government. GFOA wants to know<br />
the most common questions professional<br />
analysts have about local governments<br />
and the information they most<br />
commonly use from financial reports.<br />
We also want to know the extent to which<br />
the most commonly used information<br />
satisfies the financial analysts total<br />
informational needs—or put another way,<br />
what percentage of the outcome (such<br />
as completing the financial analysis)<br />
results from the most commonly used<br />
information?<br />
Question 2: What is the Cost of<br />
Complying with GAAP Accounting<br />
and Reporting Standards?<br />
GAAP accounting standards often require<br />
governments to collect, prepare, and<br />
report information that they otherwise<br />
would not. This adds a new or marginal<br />
cost to finance administration that<br />
would otherwise not exist. GFOA wants<br />
to know the marginal cost of complying<br />
with new reporting standards, including<br />
staff time, consulting time (including<br />
external auditors and other accounting<br />
service providers), software, and any<br />
other relevant costs. We are interested in<br />
total costs, include staff time, software<br />
upgrades, and consultant support,<br />
after the standard is “live.” We are also<br />
interested in seeing data from a random<br />
selection of governments, or at least<br />
reasonably representative of the range of<br />
capabilities that local governments need<br />
to implement new standards.<br />
Question 3: What Does the Public Really<br />
Want to Know About Public Finance?<br />
Financial transparency is important<br />
but is often undertaken without a firm<br />
understanding of what the public most<br />
wants to know about their government’s<br />
finances. GFOA wants to know what<br />
information about public finances<br />
would do the most to reduce the public’s<br />
uncertainty about the trustworthiness<br />
of their local government as stewards<br />
of their tax dollars. What do citizens/<br />
taxpayers want to know about local<br />
government finance? How do they<br />
define accountability for the use of their<br />
tax dollars?<br />
Question 4: Do Financial Reports<br />
Impact Policy Making?<br />
Elected officials need to know about<br />
the financial condition of their<br />
governments. GFOA wants to know<br />
what information about public finances<br />
gives elected officials the most<br />
confidence that they are succeeding in<br />
their role of stewards of public finances.<br />
What do elected officials want to know<br />
about local government finance?<br />
How do they define accountability for<br />
the use public funds?<br />
Learn more about the first issue of the<br />
Public Finance Journal:<br />
gfoa.org/publicfinancejournal<br />
Read more about the GovFiPrize:<br />
gfoa.org/govfi-prize<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 13
<strong>2023</strong><br />
AWARDS<br />
for<br />
EXCELLENCE<br />
IN GOVERNMENT FINANCE<br />
AWARDS FOR EXCELLENCE<br />
I N G O V E R N M E N T F<br />
I N A N C E<br />
BY JARA KERN<br />
“The secret of change is to focus all of your energy<br />
not on fighting the old, but on building the new.”<br />
From the vantage point of two millennia ago, the Greek<br />
philosopher Socrates could not have imagined our world<br />
today. He certainly, however, had the right idea about<br />
change—that in embracing it, we can find new and<br />
improved ways of working and serving our communities.<br />
The six winners of the <strong>2023</strong> GFOA Awards for Excellence<br />
in Government Finance are examples, above all, of what<br />
comes from embracing change. These include stories<br />
of resilience, financial stewardship, and community<br />
consensus that help one town recover after a natural<br />
disaster, while another makes a generational investment<br />
in the future. In others are lessons in how embracing<br />
emerging technologies unlock fiscal transparency<br />
and staff productivity. Finally, awardees also share<br />
how taking innovative approaches to some of<br />
the most pressing issues we face today—climate<br />
change and equity—can move us all forward.<br />
These six winners were selected from entries across<br />
a diverse set of governments and agencies in the<br />
United States and Canada. Their stories provide realworld<br />
examples of GFOA best practices at work, as<br />
well as inspiration on how other governments can<br />
use creative solutions to solve common challenges.<br />
Read on to learn more.<br />
City of<br />
Monrovia<br />
Town of<br />
Fulton<br />
Vermont<br />
Bond Bank<br />
Guilford<br />
County<br />
TriMet<br />
Town of<br />
Pecos City<br />
14
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
CREATIVE SOLUTION TO A COMMON CHALLENGE:<br />
Water Conservation with Municipal Policy<br />
CREATIVE SOLUTION TO<br />
A C O M M O N C H A L L E N G E<br />
©<strong>2023</strong> LEO ACADIA C/O THEISPOT.COM<br />
City of Monrovia, California<br />
Monrovia Conserves: A Finance Team’s Approach to Water Conservation<br />
About the City of Monrovia<br />
Located in Los Angeles<br />
County, the City of Monrovia<br />
is in the foothills of the San<br />
Gabriel Mountains. Situated<br />
just east of Los Angeles,<br />
it is the fourth-oldest incorporated city<br />
in the county, with over 2,500 historic<br />
homes and a historic Old Town, which<br />
has hosted a weekly street fair for<br />
more than 30 years. Monrovia has been<br />
used as a setting for filming TV shows,<br />
movies, and commercials. As of the 2020<br />
census, the city’s population was 37,931.<br />
W<br />
ith the state<br />
facing a historic<br />
drought in July<br />
2021, California’s<br />
Governor Gavin<br />
Newsom declared a drought state of<br />
emergency for 50 counties and urged<br />
all Californians to reduce their water<br />
usage by 15% compared to 2020 levels.<br />
Municipalities across the state brought<br />
mandatory conservation measures<br />
to residents in a variety of ways,<br />
including restrictions and citations.<br />
The City of Monrovia, though, took an<br />
unconventional approach by developing<br />
a water penalty program incorporated<br />
into its utility billing process. In the<br />
two years since its introduction, the<br />
program has helped the city conserve<br />
nearly 700 million gallons of water<br />
and achieve a 17% reduction in<br />
citywide water usage. Here is how other<br />
governments facing similar constraints<br />
can utilize a similar approach to think<br />
creatively about solutions.<br />
DRASTIC MEASURES FOR A<br />
DEVASTATING DROUGHT<br />
Drought conditions during the summer<br />
of 2021 caused unprecedented water<br />
shortages throughout California.<br />
Municipalities across the state<br />
responded by implementing new water<br />
restrictions, such as limiting landscape<br />
irrigation to specific days of the week<br />
and times of the day and issuing<br />
citations for violations. By October, the<br />
historically high temperatures and<br />
record dry conditions had not let up. In<br />
response, Governor Newsom issued a<br />
proclamation banning wasteful water<br />
practices and expanded the drought<br />
emergency to include all 58 counties—<br />
including Los Angeles County.<br />
Located just east of Los Angeles,<br />
Monrovia relies heavily on an<br />
underground aquifer known as the Main<br />
San Gabriel Basin, which was nearing<br />
historic lows. Neighboring communities<br />
and prior agreements offered no relief.<br />
As City Manager Dylan Feik explained,<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 15
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
The City of Monrovia relies heavily on the San Gabriel Reservoir, which was nearing historic lows during the summer of 2021.<br />
“Historically, as Monrovia’s water usage<br />
crept higher, we’ve had to purchase some<br />
of our water from neighboring water<br />
agencies. This was no longer possible.”<br />
To make matters worse, the public<br />
was not complying with the governor’s<br />
request. “We were seeing months when<br />
our water usage was actually going<br />
up,” lamented Feik. That was when city<br />
staff knew they needed to do something<br />
drastically different to curb usage.<br />
Between October and <strong>December</strong> 2021,<br />
the City drafted language for its own<br />
mandatory emergency ordinance<br />
and developed an innovative water<br />
conservation program.<br />
CREATING A WATER<br />
CONSERVATION PLAN<br />
Following adoption of a mandatory<br />
emergency ordinance in <strong>December</strong> of<br />
2021, staff spent the following 60 days<br />
educating the community about the new<br />
and nonconventional water conservation<br />
strategy tied directly into its water<br />
utility billing process. The plan required<br />
a mandatory 10% reduction in water<br />
consumption by all water customers,<br />
including residences, commercial<br />
businesses, churches, and schools.<br />
“The initial strategy was built on<br />
the idea that we’re all in this together,”<br />
explained Feik. The penalty for failing to<br />
meet the required 10% reduction was a bill<br />
of two times the cost of each water-billing<br />
unit. The standard cost per unit (748<br />
gallons of water) is $2.44. Consequently,<br />
the penalty was set at $4.88 per unit in<br />
excess. Penalties for excess water usage<br />
took effect on the March 2022 utility bills.<br />
The biggest challenge was addressing<br />
concerns of fairness. If one resident used<br />
five units of water and their neighbor<br />
used 50, assigning a 10% reduction of<br />
water usage across the board seemed<br />
unfair. “Some residents had spent their<br />
own money removing grass lawns and<br />
installing low-flow fixtures to bring their<br />
water consumption down. Asking them<br />
to reduce more was really hard,” Feik<br />
recalled. The city made the decision,<br />
however, that everyone would be subject to<br />
the target, including the city itself. Thus,<br />
the program became a united citywide<br />
conservation effort. To address unique<br />
fairness concerns on an individual bases,<br />
the city established an appeals process<br />
for customers who sought to contest their<br />
penalties. This approach would cover<br />
special circumstances, like sprinkler or<br />
pipe breakage, or cases in which residents<br />
already used so little water that penalties<br />
for simply maintaining these levels would<br />
be unreasonable.<br />
LEANING ON TEAMWORK<br />
Creating and implementing a brand-new<br />
water conservation plan was a team effort<br />
in a state of emergency. Conventional<br />
water restrictions are all the same—don’t<br />
water on certain days of the week—and<br />
this was not going to be the best solution<br />
for Monrovia. “We like to say ‘let’s do<br />
what’s best for Monrovia’,” Feik explained.<br />
“Creating a completely different approach,<br />
as stressful as it was, allowed each team<br />
member to combine their individual<br />
strengths with one another to form a plan<br />
and build a solution.”<br />
Just as residents were required to step<br />
up their water conservation efforts, city<br />
employees also rose to the challenge of<br />
implementing the new conservation plan.<br />
Accounting Assistants April Olson and<br />
Logan Del Grosso fielded complaints from<br />
residents and respectfully explained—<br />
over the phone and at the public payment<br />
counter—the drought crisis and the purpose<br />
of the water conservation plan. Payroll<br />
Technician Milka Munoz and Principal<br />
Accountant Michie Hernandez coordinated<br />
the utility billing; they calculated the<br />
penalty fees and credits and incorporated<br />
account-specific details into over 11,000<br />
monthly utility bills. The staff’s detailed<br />
work helped ensure residents could<br />
monitor their conservation efforts through<br />
XINHUA / ALAMY<br />
16
their monthly utility bill. “The idea<br />
was to give everybody a graph they<br />
can look at to understand their usage,<br />
their target, and how they’re doing in<br />
relation to that target on their bill,” Feik<br />
explained.<br />
Senior Information Systems Analyst<br />
Lou Valdez designed a custom software<br />
application that helped bring together<br />
data from three different enterprise<br />
systems to better track the appeal<br />
applications. As a designated Water<br />
Appeals Team, staff reviewed the excess<br />
usage penalty appeals in addition to<br />
regular day-to-day work. “We have a<br />
team of very capable staff to review<br />
these items and come up with some<br />
standard approaches to how we address<br />
these issues of fairness and equity. And<br />
we were able to start making some little<br />
tweaks and adjustments,” explained<br />
Feik. Lastly, leadership regularly shared<br />
insights, reports, and presentations<br />
with the City Council as the city<br />
demonstrated progress toward the<br />
conservation mandate.<br />
TRACKING THE RESULTS<br />
By spring <strong>2023</strong>, citywide water<br />
consumption was down 20%—exceeding<br />
the state’s 15% water reduction goal.<br />
“We’ve collected about $1.3 million<br />
in penalty revenue,” Feik reported.<br />
And 100% of the fees are going towards<br />
further conservation efforts, including<br />
reimbursing residents for grass<br />
lawn removal, installing low-flow<br />
water fixtures and appliances, and<br />
planting native and drought-resistant<br />
landscaping. “We’re using it for one-time<br />
costs that will reduce our dependence<br />
on water,” Feik explained. Every time a<br />
resident removed their grass lawn, they<br />
received a rebate from the City for $4 per<br />
square foot of lawn removed. “Our rebate<br />
is the highest in the area. And every<br />
time we do a turf rebate, we see almost<br />
60% water reduction.”<br />
Moving forward, Monrovia is<br />
looking to invest money to reduce<br />
water consumption from heavy water<br />
users such as parks, schools, the local<br />
cemetery, and historic homes. The<br />
city is also now providing a water audit<br />
program for residents so they can better<br />
understand their individual water usage<br />
and determine how they can conserve<br />
even more. In addition, its website also<br />
Monrovia’s innovative water conservation plan brought citywide water consumption down 20%, exceeding the<br />
state’s 15% water reduction goal, and brought in about $1.3 million in excess usage penalty revenue.<br />
“In our approach, we adopt a standard, educate people,<br />
and then let them govern themselves. Changing<br />
behavior takes generations. I’m a big believer that<br />
governments can help solve a lot of problems.”<br />
provides resources to educate residents on<br />
water-saving strategies.<br />
The true innovation was in the approach<br />
to focus on results. The City assumed<br />
residents could water however and<br />
whenever they needed so long as they<br />
also understood the goal of reducing water<br />
usage and how that was being measured.<br />
The city found that residents better and<br />
more easily governed themselves than<br />
under an alternative approach in which<br />
inspectors monitored compliance with<br />
irrigation schedules, for example.<br />
The community has embraced this<br />
program. “I remember talking to an<br />
84-year-old resident,” Feik recalled.<br />
“He called while he was on his hands and<br />
knees removing sod in his front yard.<br />
He said, ‘Hey, I just wanted you to know<br />
I’m removing my sod today. Have a good<br />
day.’ And I thought, that’s it! People did<br />
buy into this.”<br />
LESSONS FOR OTHER COMMUNITIES<br />
Amid rising temperatures, extreme<br />
drought conditions and population growth,<br />
communities across the western United<br />
DYLAN FEIK, MONROVIA CITY MANAGER<br />
States are struggling with unprecedented<br />
water shortages. Cities facing water<br />
scarcity can learn from Monrovia’s<br />
innovative approach to conservation,<br />
which Feik explained they call “the<br />
Monrovia Way.”<br />
“In our approach, we adopt a standard,<br />
educate people, and then let them<br />
govern themselves,” said Feik. Other<br />
organizations can easily study Monrovia’s<br />
non-conventional approach by referencing<br />
all of the city’s materials, documents and<br />
even copies of utility bills online.<br />
Change, of course, takes time.<br />
“Changing behavior takes generations,”<br />
Feik emphasized, even while explaining<br />
Monrovia’s success. “I’m a big believer<br />
that governments can help solve a lot of<br />
problems,” he added, reflecting on the<br />
change staff has seen in the community.<br />
EXPLORE MONROVIA CONSERVES<br />
See updates, resources, and details on<br />
Monrovia’s water conservation measures<br />
online at cityofmonrovia.org/yourgovernment/public-works/water/waterconservation.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 17
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<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
EXCEPTIONALLY WELL-IMPLEMENTED GFOA BEST PRACTICE:<br />
Fiscal Resilience and Disaster Preparedness<br />
EXCEPTIONALLY WELL-IMPLEMENTED<br />
G FOA BE ST PR AC TICE<br />
Town of Fulton, Texas<br />
Navigating Challenges to Build a More Resilient and Prepared Community<br />
WESTEND61 GMBH / ALAMY; DAVE G. HOUSER / ALAMY<br />
About the Town of Fulton, Texas<br />
Located on the Gulf<br />
Coast and overlooking<br />
Aransas Bay, the Town<br />
of Fulton is home<br />
to just over 1,550<br />
people. The town’s primary industries<br />
include tourism and fishing, especially<br />
for shrimp and oysters. Fulton was<br />
founded by George Ware Fulton in 1867.<br />
Since 2017, the Town<br />
of Fulton, Texas, has<br />
confronted a one-two<br />
punch. First, Hurricane<br />
Harvey roared ashore in<br />
August 2017, causing widespread<br />
flooding and damage as it ravaged the<br />
South Texas coast. And just two years<br />
later, the COVID-19 pandemic further<br />
strained this small town with limited<br />
resources. What could have been<br />
disastrous, though, instead galvanized<br />
the government, spurring staff to<br />
develop newfound resilience through<br />
fiscal conservatism and strict budget<br />
adherence. This is the story of how a<br />
town of 1,550 residents with a team of<br />
ten employees built outsized financial<br />
stability, increased transparency, and<br />
engaged the community.<br />
FACING CHALLENGING<br />
CIRCUMSTANCES<br />
When Hurricane Harvey made landfall<br />
on the Gulf Coast of Texas on August<br />
25, 2017, it was the first major storm to<br />
strike the area since Hurricane Celia<br />
in 1970. The Town of Fulton took a<br />
direct hit. With nearly 140 mph winds,<br />
Harvey destroyed Fulton’s town center<br />
and business district, the convention<br />
center, multiple hotels, and the town’s<br />
famous 1,200-foot fishing pier.<br />
The town faced the makings of a<br />
financial crisis, since hotel occupancy<br />
and sales tax represented Fulton’s<br />
leading sources of revenue. “We learned<br />
that they could just disappear,” said<br />
Steven Robertson, CPA, comptroller<br />
for the Town of Fulton. Robertson,<br />
then-Mayor Jimmy Kendrick, and<br />
the city secretary came together as<br />
the initial long-term recovery team,<br />
working together on behalf of Fulton<br />
with Aransas County and the City of<br />
Rockport. Initially the county and<br />
cities intended to apply for public<br />
assistance grants together, but the joint<br />
effort would introduce delays that were<br />
projected to stretch two years or more.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 19
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
Fulton’s town center and business district were destroyed and many residents lost their homes when Hurricane Harvey struck the Gulf Coast of Texas on August 25, 2017.<br />
As a result, Fulton’s leadership began<br />
procurement for assistance on its own.<br />
During this period, Robertson oversaw<br />
Fulton’s financial operations and<br />
advised the mayor, council members,<br />
and town staff.<br />
Many Fulton residents had lost their<br />
homes in the hurricane. In the wake<br />
of the storm, elected officials made<br />
two key decisions intended to reduce<br />
financial strain. In early 2017, the<br />
Fulton Town Council had passed an<br />
ordinance reducing utility rates. The<br />
council opted not to raise these rates;<br />
they would remain at 2017 levels<br />
until October 2021. In addition, in<br />
September, council members voted to<br />
reduce property tax rates, which would<br />
ultimately cost Fulton $100,000 in<br />
foregone revenue through 2021.<br />
Fulton’s rigorous fiscal<br />
responsibility was the backbone of<br />
its recovery. As Robertson recounted,<br />
staff and elected officials first focused<br />
on capturing savings from deferred<br />
hiring and reduced expenditures such<br />
as street maintenance and vehicle and<br />
equipment replacement. The savings<br />
were used to help build up strategic<br />
reserves. Fulton staff also practiced<br />
careful financial management with<br />
conservative budgeting for sales tax,<br />
mixed beverage tax, and franchise tax.<br />
By 2018 and 2019, recovery was<br />
underway. Ultimately, a combination of<br />
grants and private funding would help<br />
Fulton rebuild. This included $5.33<br />
million in FEMA grants, $4.75 million<br />
in Community Development Block<br />
Grants (CDBG), and private funding<br />
from YETI, the Texas Parks and Wildlife<br />
Foundation, and the Sid W. Richardson<br />
Foundation. Additionally, Texas Senate<br />
Bill 7, passed in 2019, allocated funds<br />
from the state to help with the local<br />
cost-share, which ultimately resulted<br />
in savings of an anticipated $300,000<br />
for the FEMA projects. “It was a team<br />
effort to come up with the funds for the<br />
local cost-share,” said Robertson.<br />
FACING NEW PRESSURES<br />
Recovery still takes time, and though<br />
Fulton staff had worked toward<br />
financial stability, the onset of the<br />
COVID-19 pandemic introduced a new<br />
set of unknowns. In addition, Fulton<br />
had a leadership change in Mayor Kelli<br />
Cole, who took office in May 2020. She<br />
faced an emergent crisis while needing<br />
to also provide strong leadership on<br />
fiscal policy and administration.<br />
“We were still struggling to overcome<br />
challenges related to grant compliance<br />
and procurement,” she noted,<br />
“especially because our team is small<br />
and had limited experience with large<br />
grant projects.”<br />
Unsure of what the pandemic might<br />
bring, Fulton’s team budgeted revenues<br />
conservatively and expenditures<br />
liberally. “We wondered if the economy<br />
would crash and if people would cease<br />
traveling altogether,” Robertson recalled.<br />
In fact, the opposite happened: remote<br />
work created an opportunity for people<br />
to travel and even relocate, and Fulton<br />
suddenly became a prime destination for<br />
those who had always wanted to live on<br />
the coast.<br />
“The boom was so big,” recounted<br />
Mayor Cole. “It seemed like everyone<br />
came to visit.” Fulton was still recovering<br />
from the damage caused by Hurricane<br />
Harvey. “The influx of visitors initially<br />
put a strain on our resources,” said<br />
Robertson.<br />
STRONGER THAN BEFORE<br />
During the rebuild and the pandemic,<br />
Fulton continued to provide essential<br />
services while also successfully<br />
managing significant disaster recovery<br />
efforts and rebuilding key community<br />
landmarks. Over this period, elected<br />
officials and finance staff prioritized<br />
transparency and community<br />
engagement. Open meetings and<br />
workshops during the recovery helped<br />
citizens understand what the town was<br />
facing and what to expect—and on what<br />
timeline. This transparency has become<br />
an established practice in the years<br />
since, with comprehensive workshops<br />
during the budget process. In addition,<br />
Cole leads efforts to actively engage<br />
residents, addressing their questions and<br />
concerns and amplifying transparency<br />
PATRICK RAY DUNN / ALAMY<br />
20
Left: The Fulton Fishing Pier, one of Fulton’s popular attractions, was rebuilt after being destroyed by Hurricane Harvey in 2017. Right: Boats dock at Fulton Harbor. The<br />
coastal town has experienced a surge in popularity since the COVID-19 pandemic.<br />
IMAGE COURTESY OF FACEBOOK.COM/ROCKPORTFULTON; GABBRO / ALAMY<br />
“We worked really, really<br />
hard to get to this point.<br />
We’re all very proud of<br />
what we were able to do<br />
for our community. And<br />
we’re a lot stronger now<br />
because of what we’ve<br />
been through.”<br />
STEVEN ROBERTSON, COMPTROLLER<br />
when it comes to Fulton’s finances.<br />
“Fulton welcomes a lot of visitors, but<br />
we’re a tight-knit community, and<br />
it’s important to build trust between<br />
elected officials and citizens whose best<br />
interests we have at heart,” Cole said.<br />
The finance team also continued<br />
building reserves to ensure that<br />
Fulton has a financial safety net. In<br />
2017, Fulton staff implemented a fund<br />
balance policy with a reserves target<br />
of 90 percent of budgeted expenditures<br />
for the general fund. “This is a target we<br />
have achieved,” Robertson noted. With<br />
its final rebuilding projects on track<br />
for completion by April 2024, Fulton’s<br />
finance staff and elected leaders are<br />
currently reevaluating this established<br />
policy to include enterprise funds.<br />
“You have to have reserves,” said<br />
Kimberly McLain, bookkeeper for<br />
the Town of Fulton. “We’ve stayed in<br />
line with our budgeting since 2018,”<br />
she added. “If you have been through<br />
something like Harvey, you know<br />
that you need to be prepared.”<br />
Fulton’s preparedness has become a<br />
vital part of the staff’s approach to fiscal<br />
planning and budgeting. “Every penny<br />
matters,” Robertson said, “and needs to<br />
be in line with what you’re planning for.”<br />
Other organizations, particularly<br />
those in small towns with limited<br />
resources, could replicate Fulton’s<br />
successful practices by focusing on<br />
fiscal conservatism, strict budget<br />
adherence, and community engagement<br />
in financial decisions.<br />
GFOA BEST PRACTICES<br />
During its path to recovery after the<br />
disaster, Fulton staff made use of<br />
many tools, assistance, and guidelines<br />
when implementing best practices.<br />
The town’s staff and leaders leveraged<br />
FEMA assistance for disaster recovery<br />
efforts, adhered to GFOA guidelines for<br />
budgeting and citizen engagement, and<br />
followed GAAP. This allowed the staff to<br />
consistently receive unmodified audit<br />
opinions, a testament to the team’s<br />
financial management proficiency.<br />
Fulton’s staff also performed extensive<br />
research on best practices in disaster<br />
recovery and financial management,<br />
using resources from GFOA and other<br />
reputable sources to inform their<br />
strategies.<br />
The team implemented GFOA best<br />
practices, specifically Fund Balance<br />
Guidelines for the General Fund, which<br />
states that “governments should<br />
establish a formal policy on the level of<br />
unrestricted fund balance that should be<br />
maintained in the general fund for GAAP<br />
and budgetary purposes.” In addition to<br />
systematically accumulating reserves,<br />
they strengthened internal controls and<br />
upheld strict budget adherence.<br />
While Fulton staff did not specifically<br />
use this best practice, their strategy for<br />
recovery covers many of the principles<br />
of GFOA’s Disaster Preparedness,<br />
which states that “local jurisdictions<br />
should incorporate resiliency in the<br />
capital planning process to produce a<br />
sustainable community and mitigate the<br />
effects of disasters.”<br />
Fulton’s remarkable recovery and<br />
success were all made possible by<br />
the community’s small but dedicated<br />
staff, who quickly adapted to changes,<br />
kept meticulous accounting records,<br />
and focused on strong financial<br />
management. As a result, the town has<br />
emerged from Hurricane Harvey and the<br />
COVID-19 pandemic more resilient and<br />
financially stable than ever.<br />
“We worked really, really hard to get<br />
to this point,” Robertson shared. “We’re<br />
all very proud of what we were able to<br />
do for our community. And we’re a lot<br />
stronger now because of what we’ve been<br />
through.”<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 21
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
CREATIVE SOLUTION TO<br />
CREATIVE SOLUTION TO A COMMON CHALLENGE:<br />
Enhancing Transparency for Borrowers and the Community<br />
A C O M M O N C H A L L E N G E<br />
Vermont Bond Bank<br />
Creating the Vermont State Revolving Fund Loan Database<br />
About the Vermont Bond Bank<br />
More than 50 years ago, the Vermont<br />
General Assembly established the<br />
Vermont Bond Bank to provide loans<br />
for local infrastructure projects,<br />
following a period of facilities<br />
construction across the state when<br />
the ability to secure long-term debt<br />
financing was at risk. Today the Bond<br />
Bank’s loan programs affect the daily<br />
lives of Vermonters across the state by<br />
financing the classrooms, roads, and<br />
water that make daily life possible. The<br />
bank holds 504 active loans worth a<br />
total of $576 million in its Pooled Loan<br />
Program and more than $240 million in<br />
the State Revolving Loan Program.<br />
Like other organizations,<br />
the Vermont Bond Bank<br />
is navigating the digital<br />
transformation imperative.<br />
The need to provide borrowers<br />
with transparent and timely data access<br />
in the face of big changes pushed Bond<br />
Bank staff to build a database for its State<br />
Revolving Loan Program. Bringing this<br />
vision to life challenged the bank’s small<br />
staff of three, but they succeeded in<br />
creating a cost-effective solution that<br />
did not require investment in in-house<br />
IT staff or major software subscription<br />
fees. Here is what the Bond Bank staff<br />
learned, and how other organizations<br />
can benefit from their success.<br />
TRANSFORMING DEBT SERVICE<br />
DATA ACCESSIBILITY<br />
Municipalities, school districts, and other<br />
public agencies often face challenges in<br />
obtaining funding at favorable rates for<br />
capital projects and maintenance. These<br />
can include limited borrowing capacity,<br />
credit rates that vary with financial<br />
stability, and fluctuating borrowing<br />
costs, among others.<br />
Pooled loan providers are a critical<br />
source of financing for local governments<br />
and agencies like school districts. They<br />
lend funds for facilities renovation and<br />
construction projects (like the Town<br />
of Middlebury, Vermont, Town Offices<br />
project, pictured above), road and<br />
highway improvements, equipment<br />
purchases, general infrastructure, and<br />
more. Many of these providers can trace<br />
their origins to the Vermont Bond Bank.<br />
When it was created by the Vermont<br />
General Assembly in 1970, the Bond Bank<br />
was the first institution of its type in the<br />
country. Today, similar organizations<br />
now exist in 11 other states, along with<br />
many similar financing agencies. These<br />
organizations provide local governments<br />
and state agencies with affordable,<br />
innovative, and appropriate capital.<br />
One of the Bond Bank’s key loan<br />
programs is the Clean Water and Drinking<br />
22
Water State Revolving Funds Program<br />
(SRF), established in the 1990s. SRF loans<br />
are made through state and Environmental<br />
Protection Agency (EPA) funding. These<br />
are below-market-rate loans for related<br />
infrastructure and natural resource<br />
conservation projects across Vermont.<br />
The Bond Bank jointly administers the<br />
SRF program with the Vermont Department<br />
of Environmental Conservation (DEC).<br />
Trailblazing history aside, the<br />
Bond Bank was lagging in providing<br />
increased financial visibility to SRF<br />
borrowers and the public. Data was<br />
locked in PDFs and therefore not readily<br />
accessible. Ultimately, the impetus to<br />
take a transformational leap forward in<br />
visibility came from the pandemic.<br />
In spring 2020, Vermont created a<br />
host of programs to help residents and<br />
communities cope with the COVID-19<br />
pandemic. Working with DEC, the Bond<br />
Bank helped create the COVID Relief<br />
Program for SRF borrowers that was<br />
announced in April 2020. The program<br />
suspended principal payments and<br />
waived interest and administration fees<br />
between June 1, 2020, and May 1, 2021.<br />
Each amortization schedule had to be<br />
signed by the State of Vermont Department<br />
of Environmental Conservation and<br />
Vermont Bond Bank, with a copy sent to<br />
the borrower and trustee. The program<br />
also introduced greater complexity:<br />
borrowers could decide to defer the<br />
full payment, pay the principal, or pay<br />
the full amount, including the waived<br />
interest and administrative fees. Each<br />
payment had to be reviewed and posted,<br />
and the loan had to be re-amortized based<br />
on the deferral or payment elected.<br />
Given this change and the associated<br />
administrative work, staff could see<br />
the need for a readily accessible and<br />
timely method to communicate debt<br />
service schedules to borrowers and<br />
interested parties. In fact, it would be<br />
transformative. “In our rural state,<br />
there are only two governmental<br />
units that have public credit ratings,<br />
so the majority of the facilities and<br />
infrastructure financing is made<br />
through the Bond Bank,” said Executive<br />
Director Michael Gaughan. “By putting<br />
our loan information on our website,<br />
we could provide an accurate picture<br />
for borrowers and the public of the<br />
lending in their communities.”<br />
ON A MISSION TO BUILD A<br />
DATABASE<br />
This situation was an opportunity to<br />
create change—and greater visibility.<br />
The organization’s vision was to create<br />
a usable tool for all amortization<br />
schedules in this program, with the<br />
ability to aggregate loans, see overall<br />
debt service requirements, and export<br />
relevant information to Excel.<br />
Controller Elizabeth King joined the<br />
staff in <strong>December</strong> 2020, and as she<br />
described it, “The database was a ‘day<br />
one’ project for me. I had to learn the SRF<br />
program and build a working database.”<br />
Building the tool, though, would be no<br />
small undertaking. The database would<br />
ultimately include more than 400 loans<br />
for approximately 170 borrowers, with a<br />
significant volume of data that needed<br />
to be consolidated and summarized.<br />
The Bond Bank had previously built a<br />
database for its pooled loan program with<br />
its local web developer, and the team<br />
used this prior project as a springboard<br />
for building the new database.<br />
As project lead, King embarked on the<br />
months-long project by using the data<br />
collected through the Coronavirus Relief<br />
Program to populate an Excel database.<br />
Together, finance staff and web developers<br />
focused on closing knowledge gaps. For<br />
example, the finance team explained the<br />
purpose of toggling between a fiscal versus<br />
a calendar year to the web developers.<br />
King emphasized that the database<br />
is built on readily available tools. “The<br />
tool is built in Excel, without reliance<br />
on complicated formulas. It uses the ‘ad<br />
across’ function and some other simple<br />
formulas.” She noted that the Bond<br />
Bank team engaged their web vendor to<br />
integrate the database into their website.<br />
Gaughan added, “Part of the beauty<br />
of this project is that it was not<br />
overly complicated—there was not<br />
an extensive RFP process involving<br />
large vendors. With the right expertise<br />
on our team and with our local web<br />
vendor, we were able to develop this<br />
tool for an investment of approximately<br />
$10,000 in development and ongoing<br />
hosting and maintenance fees.”<br />
When completed, the Clean Water<br />
and Drinking Water SRF amortization<br />
database allowed both public and<br />
government borrowers to transparently<br />
view their SRF loans individually and<br />
in aggregate—for the first time. The<br />
database could also handle the added<br />
complexity in repayment options<br />
introduced by the relief program.<br />
Now that the loan data is in Excel<br />
and updated quarterly, it opens new<br />
possibilities for visibility and analysis.<br />
Unlike static financial reports, the<br />
database provides a real-time look at<br />
debt within Vermont communities.<br />
The format also enables drilling down<br />
on loans that can be used to compare<br />
loans in similar communities or review<br />
the debt of an individual community.<br />
“In our rural state, there are only two governmental units<br />
that have public credit ratings, so the majority of the<br />
facilities and infrastructure financing is made through the<br />
Bond Bank. By putting our loan information on our website,<br />
we could provide an accurate picture for borrowers and<br />
the public of the lending in their communities.”<br />
MICHAEL GAUGHAN, EXECUTIVE DIRECTOR<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 23
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
Left: The Clean Water and Drinking Water State Revolving Funds (SRF) Program is one of Vermont Bond Bank’s key loan programs, which offers below-market-rate loans<br />
for natural resource conservation and related infrastructure projects, like the one pictured here. Right: The Vermont Bond Bank’s database includes more than 400 loans<br />
for approximately 170 borrowers, allowing both public and government borrowers to transparently view their SRF loans individually and in aggregate for the first time.<br />
A MODEL FOR POOLED LOAN<br />
PROVIDERS<br />
When compared with debt management<br />
tools that can require annual subscription<br />
fees of more than $50,000—with limited<br />
or no public access—it is easy to see<br />
success in this cost-effective in-house<br />
development.<br />
Internal and external benefits<br />
underscore the tool’s success. The<br />
database has created greater transparency<br />
for borrowers and community members,<br />
which is important because the SRF<br />
program requires an annual appropriation<br />
from the State of Vermont to meet EPA<br />
match requirements. More clarity on<br />
the role SRF debt plays in a community<br />
can help to garner more support for<br />
such funding programs, including from<br />
policymakers viewing the impact in<br />
their home communities. In addition,<br />
the model’s easy-to-use data outputs<br />
can help borrowers improve long-range<br />
financial planning, which can ultimately<br />
strengthen their credit profiles.<br />
“Creating public transparency on what<br />
a community’s debt looks like is a big<br />
deal,” Gaughan noted. “The borrowers<br />
within the SRF program range from<br />
systems that serve 40 residences up<br />
to cities with populations of more than<br />
40,000 people. With this database, we now<br />
have transparency that didn’t previously<br />
exist because of inconsistencies between<br />
system size and professionalization.<br />
Public transparency on government<br />
financing is always important—and now<br />
more is possible for Vermont.”<br />
Internally, this database has<br />
improved efficiency. The database has<br />
also streamlined loan administration,<br />
cutting down on the need for<br />
verification of loan balances with<br />
finance officers, auditors, and the<br />
general public. A cash flow forecasting<br />
tool enables more efficient program<br />
management by optimizing the timing<br />
of cashflow needs while cutting down<br />
on time required to reconcile loan<br />
balances with partners.<br />
Finally, greater transparency<br />
helps borrowers improve financial<br />
management. “We built the database so<br />
that you could export service schedules<br />
right next to each other, so anyone can<br />
see all information related to debt in one<br />
place. Users can also compare what the<br />
debt profile of a particular system looks<br />
like over the life of the loan,” Gaughan<br />
pointed out. “This kind of visibility<br />
helps leaders make better decisions on<br />
borrowing and for their communities.”<br />
SOLVING COMMON CHALLENGES<br />
The database project involved<br />
multiple related challenges that many<br />
governments face, including:<br />
• Lack of data access.<br />
• Lack of understanding of government<br />
debt profiles.<br />
• Communication barriers between<br />
government instrumentalities<br />
providing services and the diverse<br />
needs of end users—in this case,<br />
borrowers, and the public.<br />
In the case of the SRF database, the<br />
amortization schedules were stored<br />
in individual PDFs that kept Bond<br />
Bank staff, borrowers, and others from<br />
gaining an aggregate understanding of<br />
local government debt at individual,<br />
community, and statewide levels.<br />
Creating the database unlocked the<br />
data and enabled it to be exported and<br />
analyzed, with far-reaching benefits.<br />
Together the Bond Bank’s two<br />
databases provide a comprehensive look<br />
at nearly any Vermont community’s<br />
current debt profile. “This work provides<br />
a model for how the public can quickly<br />
view and understand government debt<br />
without reliance on traditional financial<br />
reports,” Gaughan said.<br />
Ultimately, the Bond Bank team<br />
members saw the broader value of the<br />
data to communities, the state, and<br />
borrowers—and brought their functional<br />
and technical experience together to<br />
create the tool. “It is sometimes difficult<br />
to see the opportunity provided by large<br />
projects,” King said. “Other organizations<br />
can and should look at projects to see if<br />
there are opportunities to achieve longterm<br />
goals or better communication to<br />
the public through data.”<br />
VIEW THE DATABASE<br />
Explore the database on the Vermont<br />
Bond Bank’s website at vtbondbank.org/<br />
srf-database. Users can view data related<br />
to all current loans and export select or<br />
full data via .csv files, and the date of the<br />
last data update is shown to all users in<br />
the tool’s right-hand corner.<br />
IMAGE COURTESY OF CONNECTICUT RIVER CONSERVANCY<br />
24
CREATIVE SOLUTION TO<br />
CREATIVE SOLUTION TO A COMMON CHALLENGE:<br />
Capital Planning and Financial Modeling<br />
A C O M M O N C H A L L E N G E<br />
IMAGE COURTESY OF GUILFORD COUNTY SCHOOLS<br />
Guilford County, North Carolina<br />
Using Collaboration and Forward-Thinking to Support 21st Century Learning<br />
About Guilford County<br />
Founded in 1771<br />
and located in<br />
North Carolina’s<br />
Piedmont region, Guilford County is home<br />
to 546,101 residents. With more than 10<br />
municipalities, including Greensboro and<br />
High Point, Guilford County is the state’s<br />
third most-populous county.<br />
F<br />
ive years ago, Guilford<br />
County leaders identified<br />
a significant need for K-12<br />
school capital construction.<br />
Their approach to sound<br />
financial planning was underpinned<br />
by a collaboration between the County<br />
Board of Commissioners and the<br />
Board of Education. These two boards<br />
have forged a partnership that aligns<br />
both elected bodies, the community,<br />
financial experts, and financial<br />
regulators. The effort has resulted<br />
in a sustainable funding model that<br />
supports $2 billion in voter-approved<br />
general obligation bond borrowing<br />
authority since 2020. Here is the story<br />
of how collaboration and innovation<br />
in financial planning can help other<br />
communities address large capital<br />
investment needs.<br />
IDENTIFYING A MASSIVE NEED<br />
North Carolina operates under a unique<br />
school finance system that demands<br />
partnership between elected boards.<br />
The state’s system specifies that it<br />
is the state’s responsibility to fund<br />
instructional expenses and provide<br />
a sound basic education to every<br />
student. County governments have<br />
statutory responsibility for funding<br />
capital expenses such as buildings<br />
and equipment and funding the<br />
maintenance of those assets. Those<br />
assets, though, are held and maintained<br />
by the school systems, which are<br />
governed by local and independent<br />
elected boards of education. Created<br />
nearly a century ago, this school finance<br />
system shaped today’s structure, in<br />
which county governments hold the<br />
debt and raise the capital, but school<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 25
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
“We agreed on one of our core values—that our<br />
people matter. This means our residents and<br />
kids matter, and their learning environments<br />
matter. The vision of creating good learning<br />
environments for our kids united us and helped<br />
us build a collaborative bipartisan process to<br />
bring that vision to life.”<br />
systems use the funds as determined<br />
by their boards. In Guilford County,<br />
the state’s school finance system—<br />
and the county’s urgent need for<br />
facilities modernization—brought<br />
together the Guilford County Board of<br />
Commissioners and the Guilford County<br />
Board of Education.<br />
Guilford County Schools serve<br />
more than 73,000 students from pre-K<br />
to grade 12. The district includes<br />
over 340 separate schools and other<br />
administrative buildings that together<br />
comprise over 12 million square feet<br />
of space. Many were outdated facilities<br />
in need of updating, so work began in<br />
2016 with site visits to all schools—and<br />
the earliest of what would ultimately be<br />
more than 90 community meetings and<br />
presentations.<br />
In 2018, the Board of Commissioners<br />
and Board of Education established<br />
a Joint School Capital Facilities<br />
Committee—with representatives<br />
from both boards—to review<br />
facility conditions and prepare a<br />
recommendation for future construction<br />
and renovation needs. The Joint Board of<br />
Education and Board of Commissioners<br />
MICHAEL HALFORD, COUNTY MANAGER<br />
Facility Study (2018/2019) identified<br />
approximately $1.5 billion in needs.<br />
The study ranked school and district<br />
buildings based on facility condition,<br />
technology infrastructure, and size<br />
and state of instructional and support<br />
areas, among other measures. Facilities<br />
for maintenance, transportation, and<br />
administration were also included in<br />
the assessments.<br />
In a statement announcing the<br />
findings, then-Superintendent Sharon<br />
L. Contreras said, “21st-century<br />
learning requires new ways of designing<br />
and building schools and classrooms.”<br />
The findings estimated that the<br />
total cost of building new schools,<br />
completing repairs, eliminating<br />
deferred maintenance, and providing<br />
adequate funding for ongoing<br />
maintenance would cost more than<br />
$6.9 billion over the next 30 years.<br />
Ultimately, the study became the<br />
basis for the Board of Education’s $2<br />
billion School Facilities Master Plan<br />
(2019), which included items such<br />
as technology, safety, and security<br />
updates that fell outside the scope of the<br />
initial joint facility study.<br />
FORGING A STRONG PARTNERSHIP<br />
“Guilford County had not had a<br />
funding program at a substantial level<br />
for decades,” said Michael Halford,<br />
County Manager. “Now this study had<br />
identified a massive need. One of the<br />
biggest issues initially was helping<br />
people understand that the number was<br />
so large because the county is large,<br />
with many schools and students.”<br />
Strong partnership between the two<br />
boards was essential to communicating<br />
the vision to the community. “We<br />
agreed on one of our core values—that<br />
our people matter. This means our<br />
residents and kids matter, and their<br />
learning environments matter,”<br />
Halford recalled. “The vision of<br />
creating good learning environments<br />
for our kids united us and helped<br />
us build a collaborative bipartisan<br />
process to bring that vision to life.”<br />
Central to the work was addressing<br />
both the current and future capital<br />
needs and deferred maintenance of<br />
Guilford County. This came down to<br />
good enterprise risk management. As<br />
Halford noted, “There was no way we<br />
could take on a $2 billion debt load<br />
and keep our ambulances running,<br />
for example. We wanted to design a<br />
stable funding model that fit existing<br />
revenue sources as much as possible,<br />
reduced the long-term overall cost of<br />
new infrastructure for residents, and<br />
protected other core county services.”<br />
This vision and collaboration<br />
became a set of five core guidelines<br />
for this work, which Halford shared:<br />
• Address current and future capital<br />
needs and deferred major maintenance<br />
in a timely manner to provide adequate<br />
public facilities and services.<br />
• Protect the county’s ability<br />
to provide and enhance other<br />
services for residents.<br />
• Design a stable funding model<br />
that fits existing revenue<br />
sources as much as possible.<br />
• Reduce overall cost of infrastructure<br />
for residents by incorporating a<br />
more fiscally conservative “payas-you-go”<br />
model for construction,<br />
renovation, and maintenance.<br />
• Limit change in property tax rate to<br />
provide predictability and stability<br />
for residents and businesses.<br />
26
EARNING VOTERS’ APPROVAL…<br />
TWICE<br />
With a clear goal identified, the next step<br />
for the joint committee was to determine<br />
the priority order for projects. This<br />
process formed the basis for the master<br />
capital plan, which the Board of Education<br />
then used for the initial bond request<br />
made to county commissioners. With<br />
the financial pathway in development,<br />
the boards turned to communicating the<br />
plan to taxpayers. Halford emphasized<br />
that a shared vision and consistent<br />
communication from both boards helped<br />
them educate the community. “We<br />
focused on telling a common story in<br />
Guilford County. Hearing a consistent<br />
message helped to build trust,” he said.<br />
The boards and their representatives<br />
used traditional methods like<br />
public meetings and existing<br />
communications channels, but they<br />
also leaned into partnerships and<br />
new ideas. These included school<br />
visits and virtual walkthroughs to<br />
show citizens the current state of<br />
county schools—and drive home the<br />
opportunity to transform them.<br />
In November 2020, Guilford County<br />
voters approved $300 million of school<br />
bonds to fund several of the highest<br />
priority projects from the $2 billion<br />
master plan. In April 2021, the Board<br />
of Commissioners approved the list<br />
of recommended school projects and<br />
established $300 million of capital<br />
project ordinances. The county has<br />
since issued $120 million in general<br />
obligation bonds and expects to issue<br />
$180 million in FY2024. Following the<br />
November 2020 approval, the boards<br />
continued to use traditional and digital<br />
outreach tools to communicate the<br />
state of county schools to the broader<br />
community. In May 2022, Guilford<br />
County voters approved $1.7 billion of<br />
school bonds to fund the remainder of<br />
the $2 billion master plan. The County<br />
asked voters to approve a .25% sales<br />
and use tax for this purpose, but that<br />
referendum failed to pass. The bonds are<br />
funded through increased property tax<br />
revenues generated from the county’s<br />
2022 reassessment of property values.<br />
Kiser Middle<br />
School<br />
Kiser Middle School<br />
will be rebuilt on the<br />
Grimsley/Kiser campus.<br />
Estimated budget:<br />
$55,478,632<br />
Before Expected Completion: June 2024<br />
Peck K-8<br />
Expeditionary<br />
Learning<br />
The Peck K-8 Expeditionary<br />
Learning school will be the<br />
first of its kind in Guilford<br />
County.<br />
Estimated budget:<br />
$41,323,632<br />
Before<br />
Expected Completion: September 2024<br />
IMAGES COURTESY OF GUILFORD COUNTY SCHOOLS<br />
Foust Gaming<br />
& Robotics<br />
School<br />
The Foust Robotics and<br />
Gaming Magnet School<br />
is the first of its kind in<br />
Guilford County, and<br />
one of the first gaming<br />
and robotics elementary<br />
schools in the country.<br />
Estimated budget:<br />
$41,323,632<br />
Before<br />
Expected Completion: August 2024<br />
Kiser Middle School, Peck Elementary School and Foust Elementary School in Greensboro, NC, are among the facilities that are currently under construction as part of<br />
Guilford County Board of Education’s $2 billion School Facilities Master Plan.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 27
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
In FY23, Guilford County passed a<br />
new budget that continued the prior<br />
budget year’s dedicated pledge of<br />
property tax revenues and an initial<br />
set-aside of $50 million to offset the<br />
necessary increased investment in<br />
school capital. Since then, the county<br />
has renewed its commitment in FY24<br />
by maintaining the tax rate and setting<br />
aside another $51 million for school<br />
capital. Over time, the county will use<br />
this funding to smooth out the peaks of<br />
three tranches of debt issuance totaling<br />
$565 million each over the course of<br />
seven years. As debt repayment falls in<br />
the model’s out years, cash will be used<br />
to reduce reliance on debt for future<br />
school capital needs.<br />
MAKING A ‘GENERATIONAL<br />
INVESTMENT’ IN EDUCATION<br />
At $2 billion, the scope of the program<br />
was massive. In comparison, the<br />
FY24 Guilford County General<br />
Fund budget is $840 million and<br />
the FY24 Guilford County Schools<br />
operating budget is approximately<br />
$1 billion. “The financing program<br />
represents a generational investment<br />
in K-12 educational facilities in our<br />
community,” Halford said.<br />
Several years into the initiative<br />
and two years into the dedicated<br />
property tax, the county has authorized<br />
$523 million in project ordinances<br />
and collaboratively planned for the<br />
remaining $1.48 billion spending<br />
authorization, in addition to issuing the<br />
General Obligation bonds noted above.<br />
Guilford County established and is<br />
maintaining a sound capital plan and<br />
financing model. This includes a stable<br />
Visual and<br />
Performing<br />
Arts<br />
Elementary<br />
Construction is underway<br />
on this magnet school in<br />
east Greensboro, which will<br />
be the first of its kind for<br />
Guilford County Schools.<br />
Estimated budget:<br />
$33,505,256<br />
and consistent funding source for<br />
school capital projects, eliminating<br />
the uncertainty and budget challenges<br />
that come with ad hoc funding. The<br />
sustainable funding model also helps<br />
with better allocation of resources<br />
and improved infrastructure<br />
management. With several new or<br />
replacement schools scheduled to<br />
open in 2024, students will soon<br />
begin learning in upgraded, modern<br />
facilities that have enhanced the<br />
educational environment. Meanwhile,<br />
students across the county are already<br />
benefiting from improvements to<br />
safety and technology enhancements<br />
enabled by the bond funds.<br />
A BLUEPRINT FOR OTHER<br />
COMMUNITIES<br />
School infrastructure demands<br />
consistent investment and<br />
maintenance. Yet communities across<br />
the country face pervasive challenges<br />
in effectively financing and executing<br />
capital construction projects that<br />
truly meet evolving needs. It’s why a<br />
comprehensive funding model and<br />
ongoing collaboration is so important.<br />
To be successful, a plan in the Guilford<br />
model must align stakeholders, balance<br />
financial considerations, and manage<br />
and monitor the costs of construction<br />
and ongoing maintenance. It’s also<br />
essential to consider future demand: in<br />
Guilford, the plan and the deployment<br />
of the $2 billion investment are<br />
designed to stagger future school<br />
repair and replacement needs.<br />
As early as 2020, the project had<br />
gained recognition statewide for its<br />
substantial scale and unique financial<br />
planning approach. In addition, as of<br />
2022, Guilford County has earned a<br />
AAA rating from all three bond rating<br />
agencies. The Moody’s rating specified<br />
that the rating “reflects the county’s<br />
strong financial position, supported<br />
by proactive management and<br />
comprehensive fiscal planning, and<br />
manageable pension liabilities.”<br />
Organizations emulating<br />
Guilford’s model should seek to invite<br />
collaboration—as in the joint committee<br />
model—and prioritize transparency<br />
and flexibility. Honesty also matters:<br />
the County Board had to acknowledge<br />
the underfunding in prior decades of<br />
school facilities—never an easy thing to<br />
do as elected officials, but essential in<br />
this situation. Guilford has shown that<br />
collaboration can transcend traditional<br />
governance boundaries and bring<br />
entities together in pursuit of a common<br />
goal that benefits an entire community.<br />
GFOA BEST PRACTICES<br />
Guilford County staff followed GFOA<br />
best practices on capital planning<br />
and infrastructure in building their<br />
sustainable funding model. This<br />
includes two best practices. Capital<br />
Asset Management recommends that<br />
local, state, and provincial governments<br />
establish a system for assessing<br />
capital assets and appropriately plan<br />
and budget for maintenance and<br />
replacement needs. Strategies for<br />
Establishing Capital Asset Renewal and<br />
Replacement Reserve Policies guides<br />
governments on adopting a written<br />
policy on capital reserves for renewal<br />
and replacement and emphasizes the<br />
benefits of flexibility that come with<br />
such reserves.<br />
Guilford County’s approach went<br />
beyond building classrooms and<br />
modernizing structures to find<br />
consensus between elected boards,<br />
and between community entities.<br />
Looking to the future, Halford noted that<br />
changing conditions like high inflation<br />
and economic headwinds can introduce<br />
new challenges. “We made a promise<br />
to residents, and we’re committed<br />
to continuing to deliver on it. This<br />
takes constant monitoring of our plan<br />
and working with our school system<br />
partners on everything from cash flow<br />
to priority needs—today and tomorrow.”<br />
IMAGE COURTESY OF GUILFORD COUNTY SCHOOLS<br />
28
CREATIVE SOLUTION TO A COMMON CHALLENGE:<br />
Equity in Procurement and Contracting<br />
CREATIVE SOLUTION TO<br />
Tri-County Metropolitan Transportation<br />
District of Oregon (TriMet)<br />
Increasing Small Business Participation on Contracts<br />
A C O M M O N C H A L L E N G E<br />
BOB POOL / SHUTTERSTOCK<br />
About TriMet<br />
TriMet provides bus, light<br />
rail, and commuter rail<br />
service in the Portland,<br />
Oregon, region. The<br />
agency was created in 1969 when<br />
the Portland City Council passed a<br />
resolution to create it under authority<br />
granted by the Oregon State Legislature.<br />
The system averages over 300,000<br />
rides per weekday and is overseen<br />
by a seven-person board of directors<br />
appointed by the state’s governor. As of<br />
2022, TriMet has about 3,500 employees.<br />
Since 2020, a heightened<br />
focus on embracing diversity,<br />
equity, and inclusion<br />
has been reshaping how<br />
organizations do business.<br />
Diversity, equity, and inclusion are core<br />
values for the Tri-County Metropolitan<br />
Transportation District of Oregon<br />
(TriMet). Implementing principles of<br />
equity in procurement and contracting,<br />
though, requires intentionality—and a<br />
transformational change in practice.<br />
And change is never easy. This is the<br />
story of how TriMet took a new approach<br />
to its contracting policies and processes<br />
to remove barriers to participation,<br />
increase healthy competition, and boost<br />
participation from small businesses.<br />
CHANGING GOALS,<br />
CHANGING PRACTICES<br />
Equity goals are common throughout<br />
all levels of government. For example,<br />
shortly after taking office in 2021,<br />
President Biden set a goal of increasing<br />
the share of contracts with small<br />
business participation from 10 to 15%<br />
by 2025. Many other state and local<br />
governments also recognize that<br />
contracting with small businesses in<br />
the local economy can have a positive<br />
ripple effect. Not only does this<br />
generate more competition and better<br />
results, but it can also reduce the gap in<br />
business ownership between privileged<br />
and disadvantaged groups in the<br />
community.<br />
As a large buyer of goods and<br />
services in the Portland region, TriMet<br />
is in a position to increase the level<br />
of participation of small businesses<br />
and companies owned and operated<br />
by underrepresented people. But<br />
TriMet needed to think differently<br />
to encourage more participation by<br />
community-based organizations<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 29
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
(CBOs) and Disadvantaged Business<br />
Enterprises (DBEs) in its procurement<br />
processes. This year, the time was ripe.<br />
Recently, public and private<br />
development work has increased in<br />
the Portland metro region. Despite<br />
this increase, TriMet found that its<br />
solicitations were receiving less<br />
interest than in the past. Healthy<br />
competition for contracts is critical to<br />
obtain the best value and outcomes<br />
for goods and services. Bringing<br />
more small businesses into the<br />
contract bidding process would<br />
be a win for everyone—positively<br />
influencing the local economy and<br />
generating better results for TriMet.<br />
GOING TO THE CONTRACTORS<br />
TriMet’s traditional practice for<br />
soliciting bids or request for proposals<br />
was to post opportunities on its<br />
procurement portal and wait for<br />
contractors to respond. “When you<br />
post an RFP on the website, you hope<br />
people will look at it and apply,”<br />
explained TriMet Chief Financial<br />
Officer Nancy Young-Oliver. “Even<br />
in a single project, there can be<br />
multiple opportunities—like paint and<br />
electrical—for small businesses.”<br />
“As civil servants, we are here to serve the community.<br />
And when you can help break down barriers and<br />
provide more information or demystify a government<br />
contract to a small business and then see their<br />
participation and success—that’s something you want<br />
to replicate.”<br />
Historically, TriMet has been<br />
successful in attracting small<br />
business participation on large capital<br />
construction projects. However,<br />
despite an increase in opportunities—<br />
including those for subcontractor<br />
participation—TriMet witnessed<br />
decreases in the number of DBEs<br />
that were responding to RFPs or bids<br />
and competition for projects was<br />
dwindling. TriMet could no longer<br />
simply post solicitations and hope<br />
small businesses would participate.<br />
It was time to change up the “let<br />
the contractor come to TriMet”<br />
approach. Prior to making any<br />
changes, staff worked to understand<br />
some of the barriers that smaller<br />
businesses faced in submitting<br />
LESTER SPITLER, DIRECTOR OF PROCUREMENT AND SUPPLY CHAIN<br />
proposals. First, they reached out to<br />
select small business owners from<br />
past contracts or their network to<br />
learn more about what stood in the<br />
way. The team learned that TriMet<br />
policies could make it difficult to<br />
participate and cited specific examples<br />
including requirements to use<br />
specific equipment, past experience,<br />
or capacity. In other cases, TriMet<br />
administrative practices like billing<br />
timelines made the work less desirable.<br />
The TriMet Board of Directions also<br />
approved an exemption, allowed<br />
under the Oregon Public Contracting<br />
Code, to create a “sheltered market”<br />
for a specific solicitation. This<br />
provided incentives for State of<br />
Oregon-certified small businesses.<br />
YOORAN PARK / ALAMY<br />
30
IMAGE COURTESY OF TRIMET<br />
Understanding more about what<br />
stood in the way helped TriMet staff<br />
create a new event, the Small Business<br />
Summit on June 21, <strong>2023</strong>, to address<br />
challenges and increase participation.<br />
TriMet marketed the summit through<br />
various communication channels and<br />
held it at a central location that could<br />
accommodate a large group. During<br />
the summit, TriMet project managers<br />
and two general contractors presented<br />
opportunities to attendees.<br />
“It was about meeting them where<br />
they are,” said Young-Oliver. “And<br />
it worked. We reached 70 different<br />
contractors with dozens of opportunities<br />
in a two-hour window.” The results<br />
were immediate: after the summit, a<br />
single RFP received eight applications,<br />
compared to the average of one or two.<br />
As Young-Oliver noted, “Now we had a<br />
real pool of talent to select from.”<br />
One company in attendance at<br />
the summit has just been awarded<br />
a $10 million contract. “It’s a Native<br />
American-owned and staffed<br />
company,” said Lester Spitler, Director<br />
of Procurement and Supply Chain at<br />
TriMet. “It’s this company’s largest-ever<br />
prime contract award. And it all came<br />
from the summit.”<br />
In addition to educating contractors,<br />
the summit also proved to be a great<br />
learning opportunity for TriMet. Staff<br />
learned that numerous DBEs were not<br />
able to bid on recent TriMet solicitations<br />
due to various requirements in the bid<br />
documents. For example, at the summit<br />
Young-Oliver spoke with a painter<br />
who had not applied because he did<br />
not own a painting booth. This was a<br />
barrier to entry that TriMet could lower<br />
by providing a paint booth for use on<br />
this and future projects. “Here, TriMet<br />
can provide the infrastructure that’s<br />
preventing entry,” said Young-Oliver.<br />
“We’re learning how to shift to open<br />
up possibilities for greater equity and<br />
participation.”<br />
EARNING RECOGNITION AS AN<br />
‘AGENCY OF CHOICE’<br />
TriMet’s goal is to build upon its<br />
historical reputation as a “public agency<br />
of choice” for small businesses. “As<br />
civil servants, we are here to serve the<br />
community. And when you can help<br />
break down barriers and provide more<br />
In addition to their efforts to increase small business participation, TriMet is also a leader in supporting<br />
Disadvantaged Business Enterprises (DBEs). Raimore Construction was awarded the largest contract for a<br />
DBE in Oregon for Trimet’s Division Transit Project (pictured above), which was completed in summer 2022.<br />
information or demystify a government<br />
contract to a small business and then<br />
see their participation and success—<br />
that’s something you want to replicate,”<br />
said Spitler.<br />
While TriMet has not yet conducted<br />
a disparity study, the entire TriMet<br />
team is proud of the agency’s efforts<br />
to become more inclusive. Spitler<br />
noted that project managers have been<br />
energized by seeing the impact on<br />
small businesses.<br />
LOOKING FORWARD<br />
Going forward, TriMet is planning a<br />
2024 summit and working to create a<br />
utilization dashboard that will help<br />
staff track incremental participation<br />
improvements over time. The staff<br />
is also introducing a new initiative,<br />
which they are calling “Net 15,” to<br />
address cashflow concerns that<br />
extended payment terms can introduce<br />
for small business owners. “We’re<br />
planning to work with a few select<br />
DBE vendors and allow them to bill us<br />
twice a month so we can pay them more<br />
quickly,” Young-Oliver explained. The<br />
project is yet another opportunity to<br />
break down a barrier that might keep<br />
smaller firms from applying.<br />
TriMet is also planning to broaden<br />
the exemption process it used on its<br />
replacement bus shelters solicitation to<br />
create an exemption for contracts of a<br />
certain size. Ultimately, this approach<br />
can increase opportunities for small<br />
businesses and support pathways to<br />
their greater self-sufficiency. By creating<br />
space for new voices at the table and<br />
advocating internally and externally<br />
for their advancement, TriMet aspires<br />
to continue to be a national leader in<br />
exemplary contracting and partnership.<br />
While TriMet has made great strides<br />
in lowering barriers to entry and<br />
increasing participation, the team<br />
acknowledges the work is not done. Also,<br />
change is rarely easy. “Initially, there<br />
were questions about why we’re doing<br />
this—do we have to?” Spitler shared.<br />
“We answered, ‘because we can, and<br />
it’s going to get better results.’ We really<br />
focused on internal communication<br />
to help everyone understand the<br />
goal, benefits, and how we could work<br />
together. And now we have the results to<br />
back up our efforts.”<br />
Overall, these efforts by TriMet show<br />
how diversity, equity, and inclusion<br />
efforts permeate areas of finance. In<br />
this case, TriMet was able to change<br />
procurement and contracting policies<br />
to help not only achieve goals of greater<br />
small business participation but also<br />
support the community that it serves.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 31
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
CREATIVE SOLUTION TO<br />
CREATIVE SOLUTION TO A COMMON CHALLENGE:<br />
Implementing Automation in Local Government<br />
A C O M M O N C H A L L E N G E<br />
Town of Pecos City, Texas<br />
Putting AI to Work in Financial Reporting<br />
About the Town of Pecos<br />
City, Texas<br />
The Town of Pecos City,<br />
situated in the river<br />
valley on the west bank<br />
of the Pecos River at<br />
the eastern edge of the<br />
Chihuahuan Desert in West Texas, is<br />
known as the home of the world’s first<br />
rodeo and for its delectable cantaloupe.<br />
With a recorded population of 12,916 in<br />
the 2020 census, Pecos serves as a vital<br />
regional hub for ranching, oil and gas<br />
production, and agriculture.<br />
Technology offers tremendous<br />
promise to transform<br />
processes, increase precision,<br />
and improve productivity.<br />
This is what drew the Town<br />
of Pecos City, Texas, to the idea of<br />
implementing AI-driven automation in<br />
specific financial processes. The result<br />
has been a significant step forward for<br />
Pecos, revolutionizing its financial<br />
management, eliminating monthslong<br />
delays, and empowering leaders to make<br />
more informed decisions with real-time,<br />
data-driven intelligence. Here is how<br />
other governments can unlock similar<br />
success.<br />
CONFRONTING A CONSTELLATION<br />
OF CHALLENGES<br />
The Town of Pecos City faced a<br />
constellation of challenges that exerted<br />
pressure on the Finance Department.<br />
The most significant was a staff shortage.<br />
Vacancies and hiring difficulties<br />
meant the department struggled to<br />
effectively manage operations and<br />
complete essential functions. In<br />
addition, some of these functions—like<br />
manual processing of cash receipts and<br />
reconciliations—were time-consuming<br />
and error-prone. As the volume of<br />
financial data grew, the department<br />
could not keep up. At one point, bank<br />
reconciliation lagged by as long as nine<br />
months, which contributed to problems<br />
like delays in financial reporting, late<br />
filing fees, and penalties.<br />
HARNESSING THE POWER OF<br />
AUTOMATION<br />
It was clear that a change was needed—<br />
and that’s when opportunity knocked.<br />
A consultant who worked on financial<br />
reporting with the city approached<br />
staff about piloting the use of robotic<br />
process automation (RPA), an AI<br />
technology. The goal was to transform<br />
operations and solve some of these<br />
persistent problems. “We’re a small city,<br />
but I was definitely enthusiastic about<br />
32
implementing any efficiencies that I<br />
could into our finance department,”<br />
said Charles Lino, city manager for<br />
Pecos City.<br />
RPA relies on automation to carry<br />
out tasks and processes like extracting<br />
data, populating forms, and more.<br />
Software robots, commonly called ‘bots,’<br />
autonomously complete activities and<br />
transactions across unrelated software<br />
systems or applications. The bots can<br />
be deployed for accounting processes<br />
like recording revenue or completing<br />
bank reconciliation. Ultimately,<br />
implementing AI-driven automation<br />
tools like RPA helps organizations<br />
realize key benefits including enhanced<br />
accuracy, expedited reporting, and<br />
higher efficiency. These in turn help<br />
companies—and governments—become<br />
more efficient and make better, moreinformed<br />
decisions.<br />
Implementing AI can make people<br />
nervous, though, largely because of the<br />
popular concerns about AI technology<br />
replacing people. And any change can<br />
make people feel threatened. This is<br />
why Lino ensured that even a pilot<br />
venture would be introduced with<br />
careful communication to create staff<br />
buy-in. “It can be a bit scary when you<br />
first introduce the topic of AI. There are<br />
so many misconceptions and genuine<br />
concerns about it,” he explained.<br />
To create buy-in, Lino first met with<br />
finance staff to explain the goal and<br />
process, assuring them that the purpose<br />
of this transformation was, as he put<br />
it, “to build efficiencies and make their<br />
lives easier.” This communication<br />
approach created staff support and they<br />
moved forward as a team to customize<br />
the RPA processes to fit the finance<br />
department’s specific needs.<br />
Next, the team identified eight<br />
processes that contained redundancies,<br />
had caused shortfalls, or contributed<br />
to ongoing difficulties. These became<br />
the target areas for implementing<br />
RPA. Evaluating for potential return<br />
on investment (ROI) focused on time<br />
savings over financial metrics. “This is<br />
about saving countless staff hours that<br />
can be repurposed,” Lino explained.<br />
The evaluation had identified<br />
automation of the accounts payable<br />
process as the biggest potential project,<br />
but the prospect was daunting. Instead,<br />
staff initially focused on what Lino<br />
called “quick wins.” Automating sales<br />
tax and daily cash reconciliation<br />
processes would create immediate<br />
improvements, unlike starting with the<br />
AP process.<br />
With these two targets identified,<br />
the team moved into detailed process<br />
mapping. This stage took time, as staff<br />
precisely scripted their normal routines<br />
for completing these tasks and shared—<br />
often via screen share—with the AI<br />
coders, who programmed the bots<br />
to replicate these manual processes<br />
step by step to train them. With<br />
process mapping complete, the coder<br />
could focus on testing in a controlled<br />
environment before implementing the<br />
new bots to carry out the real processes.<br />
Deposits—Apply to Accounts<br />
AP Automation<br />
AP Automation—Invoice Payment<br />
Utility Billing—Billing<br />
Utility Billing—Account Management<br />
Utility Billing—Data Input<br />
Records Management<br />
IT Ticket System Improvements<br />
SEEING THE RESULTS<br />
The results surpassed expectations.<br />
The bot for sales tax reporting, for<br />
example, was able to run the entire<br />
process: compile data, reconcile it, log<br />
onto the state comptroller’s website,<br />
verify it, and pay the required tax—all<br />
automatically, and on time, every time.<br />
This success was especially important<br />
for consistency and efficiency, and it<br />
removed the barriers to completion<br />
caused by staff shortages or absences,<br />
planned or unplanned. Automation also<br />
eliminated the penalties and late filing<br />
fees the city had historically incurred.<br />
Even better, with the elimination of<br />
keying errors, accuracy was guaranteed.<br />
And ROI on staff time savings really<br />
added up: Process automation saved<br />
“We’re a small city, but I was definitely enthusiastic<br />
about implementing any efficiencies that I could<br />
into our finance department.”<br />
CHARLES LINO, CITY MANAGER<br />
Check ACH from Bank—Validate (vendor name)<br />
—Apply to Tyler Tech, ACH, and NSF Logs<br />
Capturing Invoices—DE of Invoice Itself<br />
Part of a Tiered Process<br />
Water, Sewer, and Landfill (3 Different<br />
Billing Cycles)<br />
Account Management (New, Chg, Cut-off)<br />
Entry to ERP<br />
Manual and Automated Meter Reading<br />
Digitize Paper Records and Create<br />
Codification System<br />
Use Types to Run Analytics on the Ticketing<br />
System Currently in Place<br />
The Town of Pecos City finance staff identified eight processes that contained redundancies, had caused<br />
shortfalls, or contributed to ongoing difficulties, which then became the target areas for implementing RPA.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 33
<strong>2023</strong> AWARDS FOR EXCELLENCE<br />
the city’s accounting manager six<br />
to eight hours a month on the sales<br />
tax process. Previously, for daily<br />
cash reconciliations, two part-time<br />
staff had recorded the transactions<br />
every two weeks and entered them<br />
into a spreadsheet for the accounting<br />
manager to reconcile at the end of<br />
the month. Now the bot was able to<br />
reconcile the transactions daily, which<br />
collectively saved staff up to 32 hours<br />
a month while eliminating the errors<br />
that inevitably crop up among tens of<br />
thousands of monthly transactions.<br />
Moreover, the bot eliminated the ninemonth<br />
reconciliation lag that<br />
had plagued the finance department.<br />
Now, all reconciliation is up to date.<br />
“It turned out even better than I<br />
had anticipated, and our staff is really<br />
excited,” Lino said. “They no longer<br />
have to do redundant tasks, and some<br />
of the more frustrating aspects of their<br />
jobs have been made significantly<br />
easier.”<br />
LESSONS ON IMPLEMENTING<br />
AI TOOLS<br />
AI holds tremendous promise when it<br />
comes to efficiency and accuracy.<br />
As governments continue to grapple<br />
with difficulties in hiring and<br />
retaining staff, organizations can<br />
use Pecos City’s experience as a<br />
blueprint for transformation through<br />
technology. When exploring the<br />
possibilities for AI and automation,<br />
Lino suggests these steps:<br />
• Evaluate the specific challenges<br />
your organization faces.<br />
• Seek expertise on potential<br />
tools and implementation.<br />
• Customize solutions and processes<br />
to your organization’s needs.<br />
• Test your solutions in a<br />
controlled environment.<br />
• Make sure everyone knows<br />
how the system works. Staff<br />
training helps you make the<br />
most of your investment.<br />
• Gather feedback, and monitor,<br />
refine, and adjust as needed<br />
to optimize performance.<br />
In addition, those championing<br />
technology as a solution should<br />
emphasize the why and the how of AI<br />
“We’ve been on this great adventure. Our<br />
experience automating processes using AI<br />
technology has been extremely successful,<br />
and it has put us ahead of other cities our<br />
size as well as some larger cities in Texas.”<br />
automation and communicate this<br />
clearly to staff—the potential and<br />
possibilities of these tools can improve<br />
staff experience and performance, not<br />
detract from it.<br />
SOLVING COMMON CHALLENGES<br />
WITH AUTOMATION<br />
While this project focused on solving<br />
a common challenge, Lino and his<br />
team adhered to GFOA best practices<br />
including Revenue Control Policy and<br />
Receivables and Handling Receipts<br />
in the Treasury Office. The Revenue<br />
Control Policy recommends that<br />
governments establish a revenue<br />
control and management policy and<br />
review it on an annual basis. The<br />
policy should be customized for the<br />
size and resources of the government.<br />
Receivables and Handling Receipts in<br />
the Treasury Office recommends that<br />
governments should have written<br />
policies and procedures for invoicing<br />
and collection of revenues.<br />
CHARLES LINO, CITY MANAGER<br />
Moving forward, Lino is already<br />
looking for opportunities to use AI<br />
in other departments, particularly<br />
with IT and permitting processes. In<br />
the Finance Department, the next<br />
big step is tackling accounts payable<br />
automation—the major challenge<br />
his team identified in the planning<br />
phase. Lino’s objective is to eliminate<br />
paperwork and replace it with<br />
electronic signatures and approvals<br />
for a totally paperless AP process.<br />
“We’ve been on this great<br />
adventure,” Lino shared. “Our<br />
experience automating processes<br />
using AI technology has been<br />
extremely successful, and it has put<br />
us ahead of other cities our size as<br />
well as some larger cities in Texas.<br />
I’m so proud of what our team has<br />
accomplished together, and we all feel<br />
proud of these incredible results.”<br />
Jara Kern is a marketing strategist at<br />
Right Angle Studio.<br />
34
Take another step in your leadership journey.<br />
Apply to GFOA’s Execuuve Board<br />
Board members serve a three-year term and participate in three onsite meetings<br />
per year, plus GFOA’s committee meetings.<br />
Apply today at gfoa.org<br />
Applicaaons are due by February 2, 2024.
36
NEURODIVERSITY EMPLOYMENT<br />
Brain<br />
The why and how of neurodiversity employment in local government<br />
BY ANTHONY PACILIO AND MATTHEW PETERS<br />
©<strong>2023</strong> ALEX NABAUM C/O THEISPOT.COM<br />
Neurodiversity refers to<br />
the range of differences<br />
in individual brain<br />
function and behavioral<br />
traits including but<br />
not limited to autism<br />
spectrum disorder,<br />
dyslexia, and attention<br />
deficit/hyperactivity<br />
disorder (ADHD). An estimated 15 to<br />
20 percent of the world’s population<br />
exhibits some form of neurodivergence. 1<br />
Neurodivergent individuals possess<br />
a wide range of skills that can solve<br />
the complex and intricate business<br />
challenges many organizations<br />
face, making them invaluable assets<br />
across various sectors. Their strong<br />
concentration, superior problemsolving<br />
abilities, and excellent pattern<br />
recognition are just some of the skills<br />
that can be especially beneficial<br />
in many fields such as technology,<br />
finance, legal, cybersecurity, and<br />
healthcare. Despite this, unemployment<br />
for neurodivergent adults remains<br />
alarmingly high, with rates reaching<br />
between 30 and 40 percent. 2<br />
Recognizing the benefits of<br />
neurodiversity in the workplace not<br />
only improves diversity, equity, and<br />
inclusion (DEI) initiatives, but it<br />
can also lead to substantial business<br />
advantages such as increased<br />
productivity and improved quality<br />
of work.<br />
Success by the numbers<br />
Employers across all industries have<br />
experienced the direct benefits of hiring<br />
and placing neurodivergent individuals<br />
into meaningful careers that align with<br />
their skillsets. And in the public sector,<br />
government agencies are employing<br />
neurodiverse teams.<br />
One example is a tolling agency that<br />
needed to verify images of license plates<br />
captured in toll lanes for commuters who<br />
were traveling without a transponder. By<br />
employing neurodivergent individuals,<br />
the agency was able to identify and<br />
document at least 350 images per hour.<br />
In an effort to go completely digital,<br />
a state’s Department of Transportation<br />
employed a team of neurodivergent data<br />
support analysts who uploaded and<br />
digitized more than 2,000 documents a<br />
day. With an error rate of less than two<br />
percent, the team exceeded productivity<br />
expectations by converting more than<br />
25,000 documents.<br />
In the private sector, a wealth<br />
management firm employed a team of<br />
neurodivergent employees to improve<br />
15–20%<br />
Percentage of the<br />
world’s population that<br />
exhibits some form<br />
of neurodivergence 1 30–40%<br />
its Power BI dashboards, an analytics<br />
platform with business intelligence<br />
(BI) reports. The team introduced<br />
a daily testing routine for the<br />
analytics platform, establishing an<br />
automated testing framework that<br />
verified more than 75 percent of the<br />
data within the extraction process.<br />
They cataloged more than 30 feature<br />
files—a common file with feature<br />
descriptions and test scenarios—<br />
which serve as documentation for the<br />
Power BI dashboards. With more than<br />
200 test scenarios and 45 production<br />
BI reports validated, the company<br />
saved between 20 to 30 hours of<br />
manual validation every week.<br />
Due to the testing coverage, the<br />
team effectively introduced a daily<br />
reporting checklist procedure, which<br />
notified leadership when reports<br />
were ready to provide more testing<br />
coverage in the technology stack.<br />
This daily procedure rectified<br />
prior problems caused by<br />
inconsistent reporting and outdated<br />
data, guaranteeing data integrity.<br />
The estimated rate<br />
of unemployment<br />
for neurodivergent<br />
adults 2<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 37
NEURODIVERSITY EMPLOYMENT<br />
Recognizing the benefits of neurodiversity<br />
in the workplace not only improves DEI<br />
initiatives, but it can also lead to substantial<br />
business advantages such as increased<br />
productivity and improved quality of work.<br />
These are just a few examples that demonstrate<br />
how incorporating neurodiversity in the workplace<br />
can boost innovation and productivity. Not only<br />
do neurodivergent individuals provide strategic<br />
business results, but this underemployed<br />
community is given the opportunity to excel in a<br />
rewarding career.<br />
People-first approach<br />
To deploy and maintain a successful neurodiversity<br />
employment program, organizations must have<br />
a people-centric culture. The employers who are<br />
best positioned for success with a neurodiversity<br />
employment program understand the importance<br />
of a DEI culture and are usually equipped with<br />
employee resource groups (ERG) or business<br />
resource groups (BRG). ERGs are affinity groups<br />
that bring awareness and education to their<br />
communities through fundraising and other events.<br />
Attracting neurodiverse talent begins on the<br />
career site and job boards with the job description.<br />
The language should be inclusive and direct to<br />
engage neurodiverse talent and make clear the<br />
requirements and responsibilities. Once the<br />
candidate is selected for an interview, traditional<br />
interview barriers may keep neurodivergent<br />
individuals from showcasing their skills. A handson<br />
evaluation with a neurodiversity-certified team<br />
lead in a supportive workplace environment is<br />
helpful to ensure the candidate is a strong fit.<br />
However, the support cannot end there. Team<br />
leads are key components to maintaining an<br />
inclusive culture. By providing mentorship,<br />
training, and coaching, neurodiversity-certified<br />
team leads can help employers achieve increased<br />
productivity and morale while neurodivergent<br />
employees establish a strong sense of purpose.<br />
Paving the way for change<br />
Neurodiversity employment programs are paving<br />
the way for change and increasing neurodiversity<br />
in fields such as technology, legal, healthcare,<br />
manufacturing, and more. Not only do these programs<br />
deliver on DEI initiatives, but they also provide a<br />
strong return with increased innovation, morale,<br />
and camaraderie through diversity of thought.<br />
As awareness and adoption of these programs<br />
continues to grow, the neurodiverse community<br />
will have more long-lasting, rewarding careers.<br />
Anthony Pacilio is vice president of CAI Neurodiverse<br />
Solutions. Matthew Peters is chief technology officer<br />
for CAI Neurodiverse Solutions.<br />
1<br />
Nancy Doyle, “Neurodiversity at work: A biopsychosocial model and<br />
the impact on working adults,” British Medical Bulletin, September 2020.<br />
2<br />
Yesenia Carrero, “The Center for Neurodiversity and Employment”<br />
Werth Institute for Entrepreneurship and Innovation, September 29, 2021.<br />
©<strong>2023</strong> ALEX NABAUM C/O THEISPOT.COM<br />
38
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Together<br />
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demands of managing their large and complex ennnes.<br />
Membership in UF is free and open to GFOA members in large urban areas<br />
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JOIN TODAY!<br />
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Incentives &<br />
Consequences:<br />
Are you setting your team up for success?<br />
BY KATE ZABRISKIE<br />
40
INCENTIVES AND CONSEQUENCES<br />
©<strong>2023</strong> AAD GOUDAPPEL C/O THEISPOT.COM<br />
“They want us to give great service, but they<br />
reduce our bonus if our calls go longer than<br />
three minutes. I’m not going to lie; I start<br />
talking faster at the 90-second mark.”<br />
Incentives and<br />
consequences have power.<br />
Are you motivating the<br />
right behavior, or are you<br />
encouraging people to act<br />
in ways you don’t want?<br />
Misguided incentives or<br />
misaligned consequences<br />
have a huge downside—<br />
but the good news is that<br />
with a careful thinking, you<br />
can avoid missteps.<br />
“She asked me to suggest ideas, so I did. I now<br />
have a bunch of extra work to do. It’s the last time<br />
I’m opening my mouth. I didn’t realize offering an<br />
idea meant signing up to execute it.”<br />
“We’re supposed to be polite, but most<br />
people aren’t. Nobody does anything about<br />
it. I guess that’s how business goes around<br />
here. I don’t know why I keep trying.”<br />
THE DOWNSIDE OF MISGUIDED<br />
INCENTIVES<br />
Short-term focus. In many cases,<br />
businesses with misguided incentives<br />
prioritize short-term gains over<br />
long-term sustainability. Employees<br />
who are only rewarded for immediate<br />
financial results or quick wins may<br />
overlook the importance of investing in<br />
innovation, customer satisfaction, and<br />
employee development. This narrow<br />
focus can limit the organization’s<br />
ability to adapt to changing market<br />
conditions and remain sustainable.<br />
Do you focus only on here and now, or<br />
do your incentives and consequences<br />
take the long term into account?<br />
Unethical behavior. Misaligned<br />
incentives can lead to unethical<br />
behavior within an organization.<br />
Employees who are rewarded for<br />
meeting targets, for example, may resort<br />
to aggressive tactics, dishonesty, or<br />
cutting corners. This undermines trust,<br />
harms the company’s reputation, and<br />
puts it at risk of legal and regulatory<br />
consequences. What kind of ethics<br />
do your incentives encourage?<br />
Silo mentality. Incentives designed<br />
without considering the broader<br />
impact on different departments or<br />
teams can foster a silo mentality.<br />
When employees are rewarded based<br />
on individual performance metrics,<br />
collaboration and knowledge-sharing<br />
may suffer. This lack of cooperation<br />
can stifle innovation, impede problemsolving,<br />
and limit overall organizational<br />
effectiveness. Do your incentives and<br />
consequences encourage hoarding and<br />
silos, or do they promote informationsharing<br />
and collaboration?<br />
Demotivation and disengagement.<br />
Incentives that are meaningless can<br />
demotivate employees and create a<br />
sense of disengagement. Employees<br />
may lose intrinsic motivation and<br />
become disillusioned if the rewards do<br />
not align with their values, interests,<br />
or aspirations, which can result in<br />
decreased productivity, higher turnover<br />
rates, and a general decline in morale. Do<br />
your employees care about the rewards<br />
or consequences you have in place?<br />
Tunnel vision. Employees may develop<br />
tunnel vision when incentives are<br />
narrowly focused on a single metric<br />
or objective, ignoring other critical<br />
aspects of their roles. In the end,<br />
the choices these employees make<br />
will most likely lead to customer<br />
dissatisfaction and reputational harm.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 41
INCENTIVES AND CONSEQUENCES<br />
BUILDING EFFECTIVE INCENTIVE<br />
STRUCTURES<br />
A strong system that is aligned<br />
with goals and values and applied<br />
consistently is the best offense and<br />
defense an organization can play.<br />
Align with long-term goals. Think<br />
about what matters. For example, if a<br />
department is focused on customer<br />
satisfaction, incentives should support<br />
those results. Additionally, there should<br />
be consequences to address employee<br />
behaviors that negatively affect<br />
retention and satisfaction. For instance,<br />
employees who are rushing interactions<br />
shouldn’t be rewarded, and ideally,<br />
managers should address the behavior.<br />
Foster ethical standards. When people<br />
do the right thing, they should receive<br />
recognition. When the opposite occurs,<br />
management must act quickly to coach<br />
and correct, or cut ties if the first two<br />
approaches don’t align the employee’s<br />
behavior with the organization’s goals.<br />
When designing incentives, promote both individual<br />
achievements and collective success, encouraging<br />
employees to collaborate and share knowledge.<br />
When unethical behavior is ignored,<br />
an aggressive cancer can develop. Left<br />
unchecked, what’s wrong can quickly<br />
become what’s normal.<br />
Balance individual and team goals.<br />
Strike a balance between individual<br />
performance and team collaboration.<br />
When designing incentives, promote both<br />
individual achievements and collective<br />
success, encouraging employees to<br />
collaborate and share knowledge.<br />
Additionally, think about consequences.<br />
How will you handle those who hoard and<br />
fail to think about the group’s success?<br />
Evaluate and adapt. Continuously review<br />
and evaluate the effects of your choices.<br />
Solicit feedback from employees,<br />
monitor unintended consequences, and<br />
make necessary adjustments to ensure<br />
incentives remain relevant and aligned<br />
with evolving organizational goals.<br />
CONCLUSIONS<br />
Incentives and consequences are powerful<br />
tools that can shape employee behavior and<br />
drive business outcomes. When designed<br />
and implemented correctly, incentives can<br />
fuel productivity, innovation, customer<br />
service, and sales. Furthermore, carefully<br />
chosen consequences can mean the<br />
difference between the right choice and the<br />
wrong one.<br />
Kate Zabriskie is the president of Business<br />
Training Works, a talent development firm.<br />
©<strong>2023</strong> AAD GOUDAPPEL C/O THEISPOT.COM<br />
42
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44
RISK-AWARE RESERVES MANAGEMENT<br />
Persistence<br />
Pays Off<br />
How a decade of risk-aware reserves<br />
management has benefited the City<br />
of Sharonville, Ohio<br />
BY SHAYNE KAVANAGH AND SCOTT MCKEEHAN<br />
©<strong>2023</strong> ALEX NABAUM C/O THEISPOT.COM<br />
anaging fund balance is a<br />
concern for governments<br />
of all sizes, and the City<br />
of Sharonville, Ohio, is<br />
no different. What does<br />
make Sharonville distinct<br />
from many other local<br />
governments is its fully “risk aware”<br />
approach to reserves, which it has<br />
practiced since 2014. In this article we’ll<br />
see how that approach to risk has served<br />
Sharonville and how the city has adapted<br />
its reserve strategy to its changing risk<br />
profile over nearly a decade.<br />
First, though, what is a “risk aware”<br />
approach to reserves? A reserve is a<br />
budget and policy tool that describes the<br />
fungible resources available outside of<br />
the budget that the government can use<br />
if the resources appropriated inside of<br />
the budget are insufficient. Put another<br />
way, the reserve is insurance against<br />
unplanned, unavoidable costs or<br />
revenue losses that can’t be absorbed<br />
within the regular budget. Reserves<br />
are therefore a risk management tool,<br />
and that tool is more effective when it<br />
is managed based on the risks that a<br />
reserve may be needed for.<br />
The City of Sharonville’s journey<br />
to a risk-aware approach began with<br />
the 2008 Great Recession, which<br />
put significant stress on the city’s<br />
reserves. Many tough budget decisions<br />
were made, including cutting programs<br />
and cutting positions as staff retired or<br />
left voluntarily. The experience made<br />
city officials realize the importance of<br />
a structurally balanced budget.<br />
The city’s budget began to recover<br />
by 2012, allowing suspended services<br />
and vacated positions to be restored.<br />
By 2014, reserves had fully recovered<br />
and grown beyond pre-recession levels.<br />
Reserves are essentially a<br />
risk management tool, and<br />
that tool is more effective<br />
when it is managed based<br />
on the risks that a reserve<br />
may be needed for.<br />
It became evident, however, that city<br />
officials didn’t have a shared vision<br />
about the amount of reserves the city<br />
needed, or why. This posed a new<br />
source of financial risk: unwise use of<br />
a growing reserve.<br />
A 2013 report about the risks faced by<br />
the City of Colorado Springs, Colorado,<br />
came to the attention of Sharonville city<br />
officials, and it included a recommended<br />
reserve range to be prepared for those<br />
risks. 1 A major risk faced by Colorado<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 45
RISK-AWARE RESERVES MANAGEMENT<br />
Springs was the fluctuation of sales<br />
tax and the large proportion of overall<br />
revenue sales tax represented.<br />
Sharonville faced a similar risk with<br />
its municipal income tax, 2 which is<br />
vulnerable to recessions and makes<br />
up a large part of the city’s revenue. In<br />
fact, the State of Ohio had reduced or<br />
eliminated several other sources of<br />
revenue that support local governments,<br />
which had increased the income tax’s<br />
share of total city revenue from around<br />
80 to nearly 90 percent.<br />
Sharonville had a risk analysis<br />
conducted in 2014, cataloging and<br />
analyzing the following risks:<br />
• In addition to the risks posed by the<br />
income tax, the city’s other revenues<br />
were not very stable. Exhibit 1 shows<br />
the sources of Sharonville’s annual<br />
revenues from 2006 to 2013, along<br />
with the proportion of overall revenue<br />
represented by taxes. The impact of<br />
the Great Recession can be seen in<br />
the fluctuation of revenue, during<br />
which time the city’s budget was down<br />
around 14 percent and there was a<br />
decline in the percentage of the city’s<br />
revenue represented by taxes.<br />
• A Ford automobile plant is the city’s<br />
major employer, so a large portion of<br />
the city’s income tax revenue comes<br />
from taxes paid by the Ford Motor<br />
company and its employees. If the<br />
plant were to shut down, the city<br />
would have a big hole in its budget.<br />
Exhibit 2 shows the concentration of<br />
employment in Sharonville in 2011.<br />
The area of largest concentration is<br />
the location of the plant.<br />
• The city’s labor contracts required<br />
payouts for accumulated sick leave.<br />
A large cohort of firefighters was<br />
projected to retire over the next 16 years,<br />
which created a risk of expenditure<br />
volatility. Some of these employees had<br />
accumulated large unspent balances.<br />
• The city was at risk of extreme events<br />
such as flooding, rail accidents, and<br />
tornados.<br />
The 2014 analysis suggested the city<br />
select a reserve target for its general fund<br />
between $7.2 million and $9.2 million.<br />
(The details of how this analysis was<br />
performed are included in the full report,<br />
available at gfoa.org/risk-analysis.)<br />
The study provided city officials with a<br />
unified expectation and goal for the size<br />
of the city’s reserves. It also helped set<br />
the stage for several practical benefits of<br />
a stronger reserve management strategy<br />
and policy.<br />
First, there was Sharonville’s growing<br />
liability for sick leave separation<br />
benefits. With a large portion of the<br />
city’s police and fire staff coming on<br />
board during the 1990s, the projected<br />
separation benefits for the next<br />
decade were a mounting burden. Via<br />
negotiations with bargaining units, a<br />
policy change was made to significantly<br />
reduce the amount of unused sick leave<br />
paid out at retirement for new hires.<br />
Second, the city identified a ceiling<br />
amount on desired reserves. As a<br />
result, when a strong economy helped<br />
Sharonville replenish its fund balance<br />
sooner than expected, and then exceed<br />
the ceiling amount, the city had already<br />
established a policy for year-end setasides<br />
from resources above the reserve<br />
ceiling. The risk analysis highlighted the<br />
importance of using excess reserves for<br />
nonrecurring costs, so the city directed<br />
that money toward paying existing debt<br />
and funding capital projects.<br />
EXHIBIT 1 | GENERAL FUND REVENUES (IN THOUSANDS OF DOLLARS)<br />
Annual Revenue, 2005-2013 (by source)<br />
Tax Revenue (as a percentage of total annual revenue)<br />
$16,000<br />
$14,000<br />
$12,000<br />
$10,000<br />
$8,000<br />
$6,000<br />
$4,000<br />
$2,000<br />
$0<br />
2005 2006 2007 2008 2009 2010 2011 2012 2013<br />
86%<br />
85%<br />
84%<br />
83%<br />
82%<br />
81%<br />
80%<br />
79%<br />
78%<br />
77%<br />
2005 2006 2007 2008 2009 2010 2011 2012 2013<br />
Tax revenue<br />
All other revenue<br />
2005 2006 2007 2008 2009 2010 2011 2012 2013<br />
Taxes 13,238 12,923 13,833 12,899 11,789 12,366 13,567 14,059 14,924<br />
Intergovernmental 941 831 1,138 1,606 966 1,016 897 1,021 1,091<br />
Charges for Services 416 404 367 292 325 371 341 391 350<br />
Licenses and Permits 478 444 397 524 467 484 526 533 473<br />
Investment Earnings 408 694 640 367 40 20 15 18 79<br />
Fines and Forfeitures 372 376 349 289 301 341 360 384 334<br />
All Other Revenues 184 96 59 141 214 376 424 274 373<br />
Total $16,038 $15,766 $16,784 $16,117 $14,102 $14,973 $16,130 $16,680 $17,624<br />
46
© JONATHAN WEISS, DREAMSTIME.COM<br />
Third, Sharonville was able to<br />
leverage its reserves to self-finance<br />
and capital projects and save interest<br />
costs. Back in 2014, there was a<br />
backlog of street maintenance, a<br />
longstanding desire to construct a<br />
new police station, and a handful of<br />
necessary roadway improvements and<br />
connectivity projects. The city has since<br />
accomplished many of these projects<br />
sooner than expected and without any<br />
long-term financing, and it only had<br />
to issue a minimal amount of debt to<br />
help finance a portion of the new police<br />
station (and that debt has since been<br />
retired). Sharonville has also been able<br />
to initiate other new projects sooner and<br />
at lower costs than would have been<br />
possible if it were completely dependent<br />
on outside financing. For example, the<br />
city is now working on a multimilliondollar<br />
project to convert a culvert into<br />
a bridge, which will reduce flooding.<br />
This project is primarily funded by<br />
reimbursable grants. Having healthy<br />
reserves gave the city more assurance<br />
in taking on this project more easily,<br />
confident it can cover construction costs<br />
while awaiting grant reimbursement.<br />
Two of the practical benefits<br />
highlighted above contributed to<br />
lowering the city’s risk profile, as well.<br />
The change in benefits payout policy<br />
reduces expenditure volatility, and the<br />
flooding project reduces catastrophic<br />
risk exposure.<br />
In 2021, as Sharonville took stock<br />
of these accomplishments and began<br />
making a new five-year capital plan, city<br />
officials realized that that the results<br />
of the 2014 analysis were quickly aging<br />
and that the old fund balance goals may<br />
no longer be relevant to the evolving<br />
risks facing the city. Here are three<br />
examples of new or evolving risks:<br />
• COVID-19 had shown that the city<br />
could be vulnerable to declines in its<br />
hotel tax revenues, which were used<br />
to help finance a local convention<br />
center. If hotel taxes came up short,<br />
the general fund would be on the hook.<br />
• Trains carrying hazardous materials<br />
pass through Sharonville—an<br />
example of an extremely lowprobability<br />
risk with potentially<br />
extreme consequences if it were to<br />
happen. Though the East Palestine,<br />
Ohio, train derailment took place in<br />
<strong>2023</strong>, which was after this analysis,<br />
it shows the potential damage of a<br />
large spill.<br />
• Cyber security risks have become<br />
salient for all local governments.<br />
Though Sharonville has a cyber<br />
insurance policy, the city is still<br />
responsible for any deductibles or<br />
damages that exceed policy limits.<br />
The city did a new analysis of these<br />
risks and of existing ones like income<br />
tax vulnerability, employee sick leave<br />
balances, and the risk of the Ford plant<br />
closing. And just as the city’s risk<br />
profile has evolved since 2014, so has<br />
the approach taken to risk analysis.<br />
The 2014 project used single<br />
numbers to represent the potential<br />
impact of risks—for example, looking<br />
back at past recessions to determine the<br />
losses incurred. In Sharonville’s general<br />
fund, the largest annual decrease in<br />
EXHIBIT 2 | CONCENTRATION OF EMPLOYMENT, 2011<br />
the city’s revenues was in 2009, down<br />
12.5 percent from 2008. But a historical<br />
reference point, like 2009, cannot be<br />
assumed to represent the “worst case.”<br />
A risk analysis must consider worse<br />
possible outcomes. At the same time,<br />
if the city experiences a decrease in<br />
revenues, it should respond by reducing<br />
its budget instead of relying on reserves<br />
to cover the entire amount of the<br />
reduction. Taking these considerations<br />
into account produced a reserve amount<br />
of $2.3 million for recession risk. Each<br />
risk was analyzed in a similar fashion,<br />
relying on Sharonville’s historical<br />
experience or on the experiences of<br />
comparable municipalities. This singlenumber<br />
approach is straightforward,<br />
but it has an important disadvantage.<br />
“Risks” are uncertain quantities, and<br />
representing uncertainties as single<br />
numbers obscures the full range of risk<br />
the city faces. 3<br />
Increasingly dark areas of purple indicate where employment is concentrated. Sharonville has<br />
one area of primary concentration, where Ford Motor company’s Sharonville Transmission Plant<br />
employs approximately 2,000 people.<br />
5–397 jobs/sq. mile<br />
398–1,574 jobs/sq. mile<br />
1,575–3,535 jobs/sq. mile<br />
3,536–6,282 jobs/sq. mile<br />
6,283–9,813 jobs/sq. mile<br />
1–5 jobs<br />
6–78 jobs<br />
79–392 jobs<br />
393–1,238 jobs<br />
1,239–3,022 jobs Source: U.S. Census Bureau<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 47
RISK-AWARE RESERVES MANAGEMENT<br />
EXHIBIT 3 | CUMULATIVE PROBABILITY CHART<br />
In 10 years, how confident can the city be that the existing general fund reserve will be enough?<br />
100%<br />
90%<br />
80%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
$- $5 $10 $15 $20<br />
To overcome the disadvantages of the<br />
single method, we must evaluate the full<br />
range of risk, rather than condensing<br />
risk down to a single number. This<br />
method is called “chance-based”<br />
because we can use the full range of risk<br />
to determine the chance that any given<br />
reserve level will be adequate to protect<br />
against the risks in question.<br />
The chance-based method allowed<br />
for a more nuanced look at the risks. We<br />
can illustrate with the closure of a major<br />
employer. The 2014 report considered<br />
only a binary condition where the major<br />
employer was either closed or operating<br />
at full capacity. The chance-based model<br />
considered a range of in-between states<br />
(such as, curtailment of production, but<br />
not complete closure) and adjusted the<br />
risk over different time periods (five<br />
years in the future versus ten years in the<br />
future), based on data collected about the<br />
useful life of the plant. Similar nuance<br />
was added for all the risks analyzed.<br />
The chance-based model also allowed<br />
for a better examination of risks like<br />
a train derailment. A derailment that<br />
results in a major spill has a very low<br />
chance of occurring, but it would have<br />
catastrophic consequences if it did. The<br />
single-number method of risk analysis<br />
does not address these types of risks well,<br />
but chance-based methods are perfectly<br />
suited for them. The chance-based<br />
method can show a range of different<br />
possible outcomes and the chance that<br />
the city would be able to financially cope<br />
with that outcome. 4<br />
MILLIONS<br />
To stay above zero<br />
To stay above<br />
critical threshold<br />
Current reserve<br />
Exhibit 3 shows one of the outputs<br />
from the chance-based method. This<br />
“cumulative probability chart” shows the<br />
chance that any given level of reserves<br />
would be sufficient over ten years to<br />
satisfy either of two conditions:<br />
1. The blue line shows the chance<br />
reserves will stay above zero, given the<br />
city’s exposure to all the risks analyzed.<br />
2. The red line shows the chance that<br />
reserves will stay above a “critical<br />
threshold” amount, which is the<br />
non-zero amount of reserves the city<br />
would prefer to stay above. It was<br />
set at $3.5 million, based on rating<br />
agency expectations for preserving<br />
the city’s bond rating, among other<br />
considerations.<br />
Exhibit 3 shows that the city’s reserve<br />
in 2021 was sufficient for 75 percent<br />
confidence to stay above the critical<br />
threshold.<br />
The exhibit also shows that reserves<br />
have a diminishing return at a certain<br />
point because the flatter the line gets,<br />
the less confidence an additional dollar<br />
of reserve “buys.” This is because the<br />
further to the right you go on the graph, the<br />
more extreme the events are that must be<br />
covered by reserves. This graphic shows<br />
that the city would still get a good “bang for<br />
the buck” from higher reserves, given the<br />
size of its existing reserve. This city would<br />
not be served as well by accumulating<br />
reserves past the point where the line<br />
starts to flatten out because more<br />
reserves do not move the city up as far<br />
on the vertical axis, which represents<br />
the chance that the city’s reserves<br />
will be sufficient to cover losses.<br />
Neither the blue nor red line ever<br />
reaches 100 percent confidence,<br />
instead extending to the right quite a<br />
bit before crossing the right side of the<br />
graph. This represents extremely rare<br />
but extremely consequential outcomes,<br />
like a severe train derailment. Less<br />
severe train derailments are included<br />
in the parts of the line that are to the left<br />
and lower down.<br />
Ultimately, Sharonville decided that<br />
it would benefit from a slightly higher<br />
reserve target. 5 Though the city was<br />
facing more risk in some areas (as in,<br />
hotel taxes), it was also facing less risk<br />
in other areas—employee sick leave<br />
liability had become more manageable,<br />
for example. The new reserve target for<br />
the general fund was $8.5 million to<br />
$11 million, which was sufficient to<br />
give the city 80 to 95 percent confidence<br />
of being able to address the risks in the<br />
analysis over the next ten years.<br />
Finally, the new analysis produced<br />
a computer simulation that allows<br />
the city to update important variables<br />
and produce refreshed analysis as the<br />
circumstances change. 6 Given the everevolving<br />
nature and costs of cyber risks,<br />
manufacturing labor changes, and<br />
transportation-related environmental<br />
incidents, the city can better prepare to<br />
have sufficient reserves and insurance<br />
coverage and remain risk-aware in the<br />
years going forward.<br />
Shayne Kavanagh is GFOA’s senior<br />
manager, research. Scott McKeehan<br />
is finance director for the City of<br />
Sharonville, Ohio.<br />
1<br />
“A Risk-Based Analysis of General Fund Reserve<br />
Requirements: A Case Study of the City of Colorado<br />
Springs” (available at gfoa.org).<br />
2<br />
Ohio is unique in that municipal income tax is<br />
a significant source of revenue for municipal<br />
governments across the state.<br />
3<br />
Readers who are interested in a fuller explanation<br />
of the consequences of obscuring the full range of<br />
risk are invited to read the GFOA report, “Should We<br />
Rethink Reserves?” (at gfoa.org), which also includes<br />
explanatory videos. In short, the primary consequence<br />
is that not understanding the full range of risk makes<br />
it impossible to truly optimize the total amount of<br />
reserves a government should seek to maintain.<br />
4<br />
Readers who are interested in reading more about the<br />
analysis are invited to read the full report produced for<br />
Sharonville at gfoa.org/risk-analysis.<br />
5<br />
The 2014 analysis produced a range of $7.7 million and<br />
$10.1 million, in 2022 dollars.<br />
6<br />
A short video explanations of the advantages of<br />
computer simulation for risk analysis is available at<br />
gfoa.org/risk-savvy-thinking-about-reserves-videos.<br />
48
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50<br />
ROBOTS<br />
RECORD<br />
OUR<br />
REVENUE
ROBOTIC PROCESS AUTOMATION<br />
IMAGE COURTESY OF WASHTENAW COUNTY TREASURER’S OFFICE<br />
How the Washtenaw<br />
County, Michigan,<br />
Treasurer’s Office<br />
used robotic process<br />
automation to save<br />
time, reduce errors and<br />
improve the timeliness<br />
of financial reporting.<br />
BY CATHERINE MCCLARY<br />
ABOUT WASHTENAW COUNTY<br />
Located in Southeast Michigan,<br />
Washtenaw County has a<br />
population of about 354,000<br />
citizens. The county’s two largest<br />
cities are Ann Arbor and Ypsilanti,<br />
which are home to two large<br />
universities– the University of<br />
Michigan in Ann Arbor and Eastern<br />
Michigan University in Ypsilanti.<br />
he Washtenaw County,<br />
Michigan, Treasurer’s<br />
Office combined the<br />
strength of enterprise<br />
resource planning (ERP)<br />
and a robotic process<br />
automation (RPA) tool to improve the<br />
timeliness and accuracy of revenue<br />
identification and recording. Since<br />
launching its new process, the county has:<br />
• Benefited from detailed, accurate<br />
revenue receipting that facilitates<br />
the bank reconciliation process<br />
and timely financial reporting.<br />
• Reduced workload with a nearzero<br />
error rate.<br />
• Freed up staff for customer-facing work<br />
and allowed Treasury personnel to<br />
better manage their transactional work.<br />
• Used an automated content manager<br />
to provide additional proof of deposit<br />
information.<br />
IDENTIFYING THE NEED<br />
The Washtenaw County Treasurer<br />
manages the county’s cash and<br />
investments, collects delinquent<br />
property taxes, and records the county’s<br />
ever-increasing revenue deposits.<br />
The Treasurer’s receipting model is<br />
built on centralized depository and<br />
disbursements functions.<br />
Washtenaw County went live with<br />
Enterprise ERP, Cashiering, and Content<br />
Manager from Tyler Technologies in 2017.<br />
During the implementation, staff from<br />
the Treasurer’s Office designed a model<br />
of three countywide depository bank<br />
accounts, designated by tender type:<br />
• ACH and other electronic deposits<br />
• Credit card deposits<br />
• Department deposits of cash and<br />
checks<br />
This introduced new complexity, but<br />
it also set the stage for automation<br />
through the careful design of deposit<br />
numbering and labels.<br />
The volume of county deposits has<br />
grown enormously in recent years.<br />
The pandemic accelerated the use of<br />
electronic payments by more county<br />
customers and funding agencies,<br />
and the county now uses multiple<br />
specialized online payment platforms<br />
and accepts cash, checks, wires, ACH<br />
deposits, PayPal, and more.<br />
Getting money into the bank quickly<br />
is good for internal controls and earning<br />
interest, but it means that deposits<br />
are made before being identified and<br />
without consolidation by county<br />
staff. The county makes 70+ deposits<br />
per day, some of which represent all<br />
the transactions for a department or<br />
program that day, and others mapping<br />
to a single payment or grant receipt.<br />
Each deposit must be identified and<br />
receipted into the ERP system, often<br />
using multiple charge codes.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 51
ROBOTIC PROCESS AUTOMATION<br />
THE PROCESS<br />
The county’s first move was selecting<br />
RPA software. It went with Automation<br />
Anywhere, a cloud-based bot that runs its<br />
processes on local machines. The software<br />
had been used in federal agencies, and<br />
the county was able to piggyback on the<br />
federal pricing schedule. The process<br />
started with one “bot runner” license<br />
and one “bot developer” license, and<br />
the county paid for bot-builder training<br />
and assistance as it built its first bot.<br />
The county identified deposits<br />
from its two court systems for its first<br />
automation project. The courts make<br />
multiple deposits per day with consistent<br />
description identifiers (including the<br />
bank deposit ID). Exhibit 1 shows the<br />
updated spreadsheet used to track<br />
daily bank deposits with identification<br />
logic, using VLOOKUP formulas based<br />
on bank deposit description, and<br />
more—which is better than trying to<br />
remember all the different types of<br />
deposits. There is an identification<br />
logic/list in Excel, which makes regular<br />
updates and additions easier. Exhibits<br />
2 through 6 show detailed steps for<br />
taking data from the bank into the ERP.<br />
THE RPA PROCESS, STEP-BY-STEP<br />
STEP 1<br />
STEP 2<br />
STEP 3<br />
STEP 4<br />
STEP 5<br />
The RPA tool copy/pastes downloaded bank data to a Bank<br />
Deposit Tracking Excel file (see Exhibit 2).<br />
The Excel file populates additional columns based on<br />
VLOOKUP formulas (see Exhibit 3).<br />
The RPA tool updates department code/identification<br />
information based on set logic (see Exhibit 4).<br />
The RPA tool maps designated deposits to create a<br />
transmittal spreadsheet that assigns charge codes, G/L<br />
dates, and reference information needed for automated<br />
receipt entry (see Exhibit 5).<br />
The RPA tool enters the transmittal receipts into the ERP<br />
via Payment Entry as a logged-in user (see Exhibit 6).<br />
(Note: The county plans to implement the Excel import tool<br />
in Enterprise ERP v2021.)<br />
EXHIBIT 1 | SPREADSHEET USED TO TRACK DAILY BANK DEPOSITS WITH IDENTIFICATION LOGIC<br />
EXHIBIT 2 | RPA TOOL COPY/PASTES DOWNLOADED BANK DATA TO EXCEL FILE<br />
EXHIBIT 3 | EXCEL POPULATES ADDITIONAL COLUMNS<br />
52
EXHIBIT 4 | RPA TOOL UPDATES DEPARTMENT CODE/IDENTIFICATION INFORMATION<br />
EXHIBIT 5 | RPA TOOL MAPS DEPOSITS TO CREATE A TRANSMITTAL SPREADSHEET<br />
EXHIBIT 6 | RPA TOOL ENTERS TRANSMITTAL RECEIPTS INTO ERP<br />
THE BENEFITS OF BOTS<br />
The process runs in a fraction of<br />
the time a person would require,<br />
with a near-zero error rate.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 53
ROBOTIC PROCESS AUTOMATION<br />
GET THE MOST OUT OF RPA<br />
Look for high-volume<br />
transaction streams with<br />
identifiable descriptions<br />
for the best return on<br />
upfront automation set-up.<br />
Expansions were added later, using<br />
the same steps for another bank<br />
account. More types of deposits were<br />
also added, starting with the highvolume<br />
deposits, and then adding more<br />
of the lower-volume but easily identified<br />
deposits. The county will slowly add<br />
the occasional volume deposits.<br />
In the future, the county will switch<br />
the software to a virtual machine from<br />
a dedicated desktop. It will also:<br />
• Implement the new Excel import<br />
tool for miscellaneous receipts<br />
beginning in Enterprise ERP v2021.<br />
• Create bot-specific credentials<br />
to download bank files from file<br />
transfer protocol (FTP) sites.<br />
• Explore working with bank data in<br />
the BAI file format (a file format<br />
for performing electronic cash<br />
management balance reporting).<br />
MEASURING SUCCESS<br />
Adding an RPA process takes advantage<br />
of the ERP’s strengths. Charge codes<br />
map to departmental revenue accounts,<br />
deposit IDs map to real-world bank<br />
accounts (balance sheet account in the<br />
ERP system), and receipt attachments<br />
in the content management software<br />
provide additional proof of deposit<br />
information. Detailed, accurate<br />
revenue receipting simplifies the<br />
bank reconciliation process and<br />
helps make financial reporting<br />
timely. The county also gauges its<br />
success by tracking employee time<br />
saved and comparing error rates.<br />
Employee time savings is tracked<br />
in hours. Processes run on a separate<br />
computer in a fraction of the time a<br />
person would require, which frees<br />
staff members for other meaningful<br />
work at their own workstations.<br />
Of course, time is still needed to<br />
initiate the processes, update as<br />
needed, and troubleshoot occasional<br />
issues; there is also an investment in<br />
initial training and development.<br />
The error rate comparison is done<br />
in percentages. The automation<br />
processes work with a near-zero error<br />
rate, and even if there are problems,<br />
they are very often quick and easy to<br />
notice and fix—the process sometimes<br />
ends either early (not complete/no<br />
receipts) or is run twice by accident<br />
(creating duplicate receipts).<br />
SUGGESTIONS FOR OTHER ENTITIES<br />
Processes cannot be automated<br />
successfully until they are understood<br />
and carefully documented. Washtenaw<br />
County suggests the following steps:<br />
• Start with a simple process as<br />
your first automation project.<br />
• Write out the process in step-bystep<br />
detail.<br />
• Look for high-volume transaction<br />
streams with identifiable<br />
descriptions for the best return<br />
on upfront automation set-up.<br />
Identify simple, consistent,<br />
and frequent items to get the<br />
most out of the new process.<br />
• Work with your bank to get<br />
maximum information per<br />
deposit and to receive your daily<br />
transaction reports in the format<br />
you need (likely .csv or .bai2).<br />
• Start small, then expand.<br />
Once your team has done its first<br />
project, you will likely see automation<br />
opportunities everywhere. If you’re<br />
working with your IT department,<br />
they may be able to identify<br />
opportunities to deploy automation<br />
for non-financial processes<br />
throughout your organization.<br />
Catherine McClary is the treasurer of<br />
Washtenaw County, Michigan.<br />
54
In Practice<br />
FINANCE | ACCOUNTING | PERSPECTIVES | INTERVIEW<br />
Strategy and Evaluation Leads to Trust and<br />
Better Decision-Making<br />
BY ADAM POWELL<br />
DENVER PUBLIC LIBRARY<br />
The work of the Strategy and<br />
Evaluation Team at the<br />
Denver Public Library (DPL)<br />
is based on collaboration<br />
and innovation. The team,<br />
which has been around since 2018,<br />
works with staff throughout DPL’s 27<br />
locations to help the organization make<br />
plans, tell the story of the impact it has<br />
on the city, and improve the efficiency<br />
and effectiveness of its service to the<br />
community. To fulfill this mission,<br />
the team also helps identify risks that<br />
should be addressed in the future.<br />
For FY 2022, DPL had a $51 million budget<br />
(denverlibrary.org/content/facts-figures).<br />
Voters approved a referendum in 2022 that<br />
will provide an additional $32 million a year.<br />
About the team<br />
Kirsten Decker, manager of strategy<br />
and evaluation, leads the Strategy and<br />
Evaluation Team, whose primary goal<br />
is to manage the implementation of the<br />
strategic roadmap and the new DPL fund.<br />
Some of the key questions they address<br />
include how the team can improve its<br />
intake processes, provide a better level<br />
of service, and mitigate some of the<br />
problems and risks they’ve identified<br />
that haven’t been addressed yet.<br />
Eric Ward joined DPL at the end of<br />
2022 as a senior management analyst.<br />
When employees come to the Strategy<br />
and Evaluation team with processes<br />
they’d like to improve, he teaches teams<br />
about problem solving using the Lean<br />
framework. He also provides management<br />
research projects that help executive<br />
leaders at DPL make better informed<br />
decisions on pressing topics, explaining<br />
the implications of potential decisions.<br />
This often includes the landscape in<br />
which DPL operates—or would like to.<br />
Aileen Ayala is the lead data analyst<br />
on the team and has been with DPL<br />
since February 2022. Ayala’s primary<br />
focus is on developing best practices in<br />
data analysis and data management.<br />
She explained that she works “on<br />
creating complex models for strategiclevel<br />
decision-making, deriving<br />
system-wide policy and/or procedure<br />
recommendations, managing our data<br />
collection process and our data once we<br />
have it, and then training departments<br />
and teams on understanding and<br />
utilizing their own data effectively.”<br />
Allie Benz is a data analyst for the<br />
team. She works to make data accessible<br />
and understandable so DPL staff can do<br />
their jobs better. Benz said that ensuring<br />
that the data is accessible is important<br />
because “many people are super skilled<br />
in what they do, but numbers aren’t<br />
necessarily their thing. I try to make that<br />
less intimidating, so they can take the<br />
data they have and work with it.”<br />
Cole Hwa Davis is a project coordinator<br />
who’s been with the team since February<br />
<strong>2023</strong>. Cole works to shepherd the<br />
funds from a 2022 ballot referendum<br />
that will provide the library with that<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 55
IN PRACTICE | FINANCE<br />
additional $32 million a year (for more<br />
information, see denverlibrary.org/<br />
stronglibrary_strongdenver). Hwa Davis<br />
“handles internal communications,<br />
project management, tracking,<br />
reporting, and meeting facilitation.”<br />
Katie Fox is a senior evaluator for the<br />
DPL, and she enjoys working on projects<br />
that measure a program’s effectiveness<br />
and community responsiveness. For<br />
example, one of the first questions the<br />
team addressed was the extent to which<br />
the library was creating welcoming<br />
environments for immigrants and<br />
refugees. “The research ends up being<br />
pretty qualitative most of the time,<br />
but that boundary gets a little fuzzy at<br />
times,” she explained.<br />
Hanna Jackovich is a management<br />
analyst on the team, and she works on<br />
the Evaluation sub-team. She noted,<br />
“We help with the evaluation over time<br />
of newer programs, and we’re actually<br />
going back now to look at programs that<br />
have never been evaluated.”<br />
Celia Gottlieb is an AmeriCorps<br />
Evaluation Volunteers in Service to<br />
America (VISTA) member and works<br />
with Jackovich and Fox, focusing<br />
on the evaluation of youth services<br />
and developing equity-centered<br />
practices. Gottlieb and the team “do a<br />
lot of developing structures to build<br />
intentional programs and then teaching<br />
it to folks across the organization, so<br />
they can align their programs and<br />
practices with the promising practices<br />
we’ve identified. This enables strategic<br />
policies and programming and sets us<br />
up well to perform evaluations.”<br />
Fox explained that the Evaluation<br />
sub-team also helps staff articulate the<br />
purpose of various services and programs.<br />
“We spend a lot of time discussing<br />
questions like, ‘What is the goal of this<br />
program? How would you know if it was<br />
working?’ So we do get into some of the<br />
metrics as well,” she said.<br />
“This is where collaboration with the<br />
data team and with employees across<br />
the organization comes in to make sense<br />
of the qualitative insights,” Gottlieb<br />
explained. Fox agreed and said that’s why<br />
it’s so valuable to have a mix of skillsets<br />
on the Strategy and Evaluation team.<br />
New strategies<br />
The DPL Strategy and Evaluation Team<br />
goes to great lengths to ensure that<br />
departments can communicate and<br />
collaborate with each other. Decker noted<br />
that this was an issue going back to the<br />
years before she came aboard. “There have<br />
been occasional issues with departments<br />
feeling siloed, so one of my tasks has been<br />
to make sure those get broken down and<br />
folks are talking to each other.”<br />
A key example was implementing the<br />
DPL Fund at the library. The team, led by<br />
Cole, worked with subject matter experts<br />
and specialists across the system to<br />
identify priority investment areas that<br />
would be aligned with the objectives of<br />
DPL’s Strategic Roadmap, which includes<br />
focusing on capacity, infrastructure,<br />
compensation, and collection. When<br />
the library is making investments,<br />
there is continuous communication<br />
and intentionality that DPL’s values of<br />
welcoming, curiosity, connection, equity,<br />
and stewardship are maintained.<br />
In addition to touching on core values and<br />
equity, the Strategy and Evaluation team<br />
works to maintain focus and streamline<br />
its efforts. Decker noted this can be<br />
challenging and requires balance. “How<br />
do we streamline without jeopardizing<br />
our accessibility or the trust that we have<br />
gained from the organization because of our<br />
accessibility?” she said.<br />
Challenges and pitfalls<br />
During new efforts for collaboration, some<br />
individuals may not always accept the new<br />
recommendations and may be resistant<br />
to change. “Kirsten has a philosophy that<br />
I really appreciate,” Fox said. “We’re not<br />
going to force ourselves on anyone who’s not<br />
interested because you can’t really do the<br />
work with folks who are actively resisting.”<br />
Fox explained that building trust and<br />
addressing concerns needs to happen<br />
throughout the project, but it can be easier<br />
to manage concerns at the beginning. If<br />
you don’t take time throughout the project<br />
to address issues and encourage honesty,<br />
you can create a situation where you think<br />
everything went great, but when you reach<br />
the end of the project, the team doesn’t<br />
accept the results.<br />
If there’s any doubt about the accuracy<br />
of the results toward the end of the project,<br />
Fox noted, being able to look back and see<br />
how the recommendations and conclusions<br />
were made is invaluable. She added that it<br />
is helpful to remind folks of their specific<br />
efforts to get to this point and remind them<br />
of the decisions made collectively by the<br />
project team.<br />
It’s possible to misjudge new relationships<br />
and trust after a successful project, Gottlieb<br />
said. “Sometimes a project is going well,<br />
and we have established relationships<br />
with the people we’re working with. Then<br />
we come in hot with the same gusto to new<br />
projects with new folks who may not work<br />
the same way.” This can be an issue after the<br />
team completes a very successful project,<br />
and they’ve learned that it’s important to<br />
keep in mind that each project is different<br />
and “requires a humble attitude and an<br />
understanding that new trust-building<br />
efforts need to happen.”<br />
To change those feelings of mistrust,<br />
Gottlieb said, the team establishes new<br />
relationships by asking questions. “I try to ask<br />
a lot of questions and be genuinely curious<br />
about what somebody might be feeling,” she<br />
said. This helps her identify pain points and<br />
opportunities for process improvement.<br />
56
Paying close attention to detail helps<br />
overcome these challenges, Decker said.<br />
“Not everybody comes to the project with<br />
that same understanding of the real<br />
commitment that something’s going to<br />
take. It’s not that they don’t care—it’s just<br />
that is not how their work works,” she<br />
explained.<br />
Building knowledge and skills is a key<br />
challenge, Decker added. For example,<br />
the team has a strong collaborative<br />
relationship with Finance to support<br />
managers in understanding their<br />
budgets. “Our team coaches the planning<br />
that comes after the idea, and we’re there<br />
to support the implementation once<br />
funding is awarded,” she explained. “We<br />
can’t just expect them to be successful<br />
at managing the complexity of their<br />
finances if they don’t have the tools to do<br />
it.” Therefore, they need to help managers<br />
build the necessary skill sets.<br />
Finally, Decker pointed to the<br />
challenge of knowing when to step<br />
back from certain projects. Sometimes<br />
projects can’t be completed, for a variety<br />
of reasons. One example is when the key<br />
stakeholders are resistant to change and<br />
are unwilling or unable to accept the<br />
recommendations for change. “That’s<br />
the hard part of this work. You have to be<br />
willing to say, ‘the right answers are not<br />
enough, so I’m stepping back,’” she said.<br />
Collaboration and trust<br />
One of the team’s core beliefs is that<br />
trust and collaboration go hand-inhand.<br />
Without efforts to build trust<br />
among team members, adopting their<br />
Kirsten Decker hosts a panel at DPL Staff Day.<br />
proposed recommendations becomes<br />
much more difficult. The “foot in the<br />
door strategy” is one of the best ways<br />
to ensure trust between new team<br />
members on a project, according to Benz.<br />
“Making yourself open and vulnerable<br />
to feedback is incredibly helpful, and<br />
then from there you can ratchet it up<br />
toward creating and building that more<br />
collaborative framework and working<br />
on larger projects,” she said, adding that<br />
this strategy is much more likely to work<br />
than immediately discussing the multimonth<br />
project schedule and associated<br />
to-do list. Working on small endeavors<br />
first helps build trust between new team<br />
members.<br />
Ayala tries to ensure that new team<br />
members understand their value to<br />
the project. “I try to present myself as<br />
someone who isn’t an expert in what you<br />
do, but someone who is an expert in the<br />
analytics piece. The question becomes<br />
how we can work together to evaluate<br />
or answer the questions you have,” she<br />
said. This strategy helps ensure that<br />
new team members feel comfortable in<br />
the beginning phases of the project and<br />
that trust can be built from there.<br />
Hwa Davis agreed about the<br />
importance of reiterating that the team<br />
is working together toward one goal.<br />
“Even if we have different perspectives<br />
or needs during the project or process,<br />
we are all working together to do<br />
something to provide for the community<br />
or to better our services,” he explained.<br />
This strategy has worked well for him,<br />
as it helps ensure that all members of<br />
the team understand what the primary<br />
goal is and reinforces a feeling of<br />
commonality and togetherness.<br />
The team also highlighted the<br />
importance of understanding other<br />
peoples’ experiences. “Things feel<br />
different for people depending on<br />
where they’re at in the organization<br />
and what their job is,” Fox said, adding<br />
that diverse viewpoints should always<br />
be considered when working on a<br />
new project. Differences in opinions<br />
and experience should not only be<br />
considered, but also validated, she<br />
explained.<br />
Last words of advice<br />
The Strategy and Evaluation team<br />
consistently attempts to engage with<br />
different departments and begin new<br />
projects, ensuring that data is a part of<br />
the decision-making process in a variety<br />
of different areas. “Don’t give up,” Hwa<br />
Davis said. “Improving services for local<br />
government, using data to drive your<br />
decisions and improve services to the<br />
community is incredibly important. It<br />
can have major impacts on a number of<br />
critically underserved communities.<br />
The work is important. It’s hard, and<br />
it’s challenging. It doesn’t always go<br />
the way you want, but it can have a real<br />
positive impact on your community and<br />
to people’s lives. My advice would be to<br />
keep going.”<br />
Jackovich added that you can’t guess<br />
what the other team members know and<br />
can contribute—go into meetings with<br />
no expectations for how individuals<br />
might be able to contribute, she advised.<br />
“I’m really trying to stop guessing what<br />
I think people can help me with or<br />
contribute to.”<br />
Finally, Decker is a strong believer<br />
in clear communication with the<br />
public. It helps build a sense of trust<br />
with constituents, especially since<br />
the surrounding community often<br />
sees libraries as a place of refuge. “It’s<br />
imperative to identify and articulate<br />
the impact of our more traditional<br />
services, as well as the services that<br />
have evolved,” she said. “We can<br />
be a partner at the table when the<br />
library is tackling large issues in our<br />
community.”<br />
Adam Powell is a consultant with GFOA’s<br />
Research and Consulting Center.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 57
IN PRACTICE | ACCOUNTING<br />
ACCOUNTING<br />
Inside Stories #2<br />
Accounting and Financial Reporting When Multiple Governments Within One Financial<br />
Reporting Entity Are a Single Employer for a PEB Plan<br />
BY MICHELE MARK LEVINE, TODD BUIKEMA, AND SUSANNAH FILIPOVIC<br />
As we often discuss in<br />
this space, generally<br />
accepted accounting<br />
principles (GAAP) for<br />
governments set by the<br />
Governmental Accounting Standards<br />
Board (GASB) use a financial reporting<br />
model that is based on the financial<br />
accountability of elected officials. In<br />
government, financial statements can<br />
include any number of legally separate<br />
governmental entities in cases where<br />
elected officials of one government are<br />
financially accountable for the affairs<br />
of other governments. This is the second<br />
of several articles exploring some of<br />
the complexities that arise from this<br />
special form of consolidation, called<br />
a financial reporting entity. 1 The first<br />
article in the series, “Distinguishing<br />
Between Internal Cash Flows and<br />
Internal Resource Flows,” was published<br />
in the October <strong>2023</strong> issue of <strong>GFR</strong> (gfoa.<br />
org/gfr-october-<strong>2023</strong>). For a refresher on<br />
when and how multiple governments<br />
should be included in a single financial<br />
reporting entity, please review the<br />
article “Puzzling Pieces: Component<br />
Unit Identification, Classification,<br />
Disclosure and Display,” <strong>GFR</strong>, April 2022<br />
(https://www.gfoa.org/gfr-april-2022).<br />
Refresher on Defined<br />
Benefit Postemployment<br />
Benefits and Plans 2<br />
Accounting and financial reporting for<br />
employers’ postemployment benefits<br />
(PEB) obligations, including both<br />
pensions and other postemployment<br />
benefits such as retiree health<br />
insurance (OPEB), is arguably one of the<br />
most complex aspects of accounting and<br />
financial reporting for governments.<br />
This is particularly the case when those<br />
obligations are based on the level of<br />
benefits that beneficiaries will receive,<br />
called defined benefits. This contrasts<br />
with defined contribution benefits, an<br />
obligation for an employer to contribute<br />
a specific amount of money for each<br />
employee during the employee’s<br />
working life, with the final level of<br />
benefits being determined only by the<br />
purchasing power of those contributions<br />
and any investment income or losses<br />
that may have accrued. For defined<br />
benefits (DB), many assumptions are<br />
necessary for an actuary, using complex<br />
mathematical models, to estimate<br />
58
what the final actual costs of those<br />
future defined benefits will be to the<br />
employers, and to estimate the employer<br />
contributions that should be made<br />
to fully fund those costs by the time<br />
employees retire.<br />
Most PEB, especially pensions,<br />
are administered through formal<br />
arrangements that (1) take in<br />
contributions, (2) safeguard and invest<br />
those funds, and (3) use those funds<br />
to make payments to beneficiaries in<br />
accordance with the benefit terms. Those<br />
arrangements, as they pertain to defined<br />
benefits, are referred to as DB pension<br />
plans or DB OPEB plans. Contributions<br />
to DB PEB plans may be received from<br />
employers, employees, and sometimes<br />
from third parties called nonemployer<br />
contributors (such as a state contributing<br />
to a pension plan covering teachers<br />
employed by local school districts). Most<br />
of these plans, especially DB pension<br />
plans, are administered through trust<br />
or equivalent arrangements that meet<br />
GASB’s criteria to be accounted for as<br />
having their own assets, independent of<br />
the employers and members, by legally:<br />
1. Preventing employers and<br />
nonemployer contributors from<br />
taking back their contributions<br />
(contributions are irrevocable),<br />
2. Limiting the use of plan assets<br />
exclusively to the payment of plan<br />
benefits, including administrative<br />
costs of the plan (assets are dedicated),<br />
and<br />
3. Protecting plan assets if any involved<br />
party goes bankrupt (assets are<br />
protected).<br />
Some governments do not use such<br />
trusts to accumulate and invest<br />
contributions and to pay benefits.<br />
Even if those governments otherwise<br />
set aside resources to pay future<br />
benefits, because the assets are not in<br />
trusts that meet these three specified<br />
criteria, those assets are considered<br />
to be assets of the government and not<br />
of the plan, and thus cannot reduce<br />
the reported PEB liability. As most<br />
As most governments do use formal pension plans<br />
administered through trusts that meet the above criteria<br />
(trusted plans) for defined benefit pensions, this article<br />
will focus exclusively on such trusted DB PEB plans.<br />
governments do use formal pension<br />
plans administered through trusts<br />
that meet the above criteria (trusted<br />
plans) for defined benefit pensions, this<br />
article will focus exclusively on such<br />
trusted DB PEB plans.<br />
There are three kinds of trusted<br />
governmental PEB plans through which<br />
governments provide DB PEBs: 3<br />
1. Single-employer plans provide<br />
benefits only for retirees of a single<br />
employer, although all individual<br />
employer governments within a<br />
single financial reporting entity are<br />
considered to be a single employer for<br />
this purpose.<br />
2. Agent multiple-employer plans<br />
(agent plans) are those in which many<br />
employers participate for investment<br />
and administrative economies of<br />
scale, but assets contributed by or on<br />
behalf of each employer’s employees<br />
are accounted for separately, and<br />
those assets and the investment<br />
returns on those assets can only be<br />
used to pay benefits to retirees of<br />
that employer. One or more employer<br />
governments within a single financial<br />
reporting entity may be a single<br />
employer for purposes of an agent plan.<br />
3. Cost-sharing multiple-employer<br />
plans are those in which many<br />
employers participate. These plans<br />
may separately estimate costs and<br />
have different contribution rates for<br />
different plan members, but all the<br />
plan’s assets are legally available<br />
to pay benefits for any member,<br />
regardless of employer. Employers in<br />
cost-sharing plans are therefore also<br />
sharing risk.<br />
Accounting and financial<br />
reporting when multiple<br />
governments within one<br />
financial reporting entity<br />
are a single employer for a<br />
trusted DB PEB plan<br />
As mentioned above, multiple legally<br />
separate governments that are<br />
included in a single financial reporting<br />
entity (a primary government and<br />
one or more of its component units,<br />
or multiple component units of the<br />
same primary government) may<br />
be a single employer in a singleemployer<br />
plan or in an agent plan.<br />
Nonetheless, when reported in<br />
stand-alone financial statements<br />
of any employer component unit,<br />
the recognized amounts for PEB<br />
liabilities and deferred resource<br />
flows, the note disclosures, and the<br />
required supplementary information<br />
(RSI) and notes to RSI, should follow<br />
the requirements for a cost-sharing<br />
plan, using the reporting-entity-wide<br />
amounts provided by the plan as if<br />
they were the collective amounts for<br />
all employers in a cost-sharing plan. 4<br />
The proportionate share for an<br />
individual government employer<br />
(such as the primary government or a<br />
component unit) may be actuarially<br />
determined by the plan’s actuary as of<br />
the date of the most recent actuarial<br />
valuation. However, an actuarial<br />
determination of proportionate share<br />
might be a separate actuarial service,<br />
because—as discussed above—the plan<br />
recognizes only a single employer for<br />
the financial reporting entity. If not<br />
determined actuarially, GAAP requires<br />
Note to reader: The content in this article is highly abridged and interpreted in an attempt to simplify many complex concepts.<br />
This article alone should not be relied on by governments in accounting for and reporting postemployment benefit obligations.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 59
IN PRACTICE | ACCOUNTING<br />
the use of a ratio. The two options for<br />
the ratio are: 5<br />
1. Based on contributions as of the<br />
most recent plan measurement date:<br />
a. (The individual government<br />
employer’s contribution, as<br />
assessed) / (Total of contributions<br />
for all the government employers<br />
within the financial reporting<br />
entity),<br />
2. Based on estimated relative longterm<br />
contributions:<br />
a. (The individual government<br />
employer’s projected long-term<br />
contributions to the pension<br />
plan) / (Total projected long-term<br />
contributions of all employers<br />
within the financial reporting<br />
entity)<br />
b. While the latter is preferred, as a<br />
practical matter it may be difficult<br />
to estimate future changes in the<br />
relative contributions of various<br />
individual employers if not<br />
actuarially determined. 6<br />
Note that if a government employer<br />
provides benefits through more than<br />
one single-employer or agent DB PEB<br />
plan for which purpose it is treated<br />
as part of a single employer, this<br />
allocation process will need to be<br />
followed for each such plan.<br />
To prepare stand-alone financial<br />
statements, each individual<br />
government employer that is a<br />
component unit within the financial<br />
reporting entity treated as part of the<br />
single employer for plan purposes will<br />
need to determine its proportionate<br />
share, measured as discussed above,<br />
of key plan amounts. The collective<br />
amounts that must be allocated are (1)<br />
net pension/OPEB liability, (2) deferred<br />
outflows of resources from pension/<br />
OPEB, by source, and (3) deferred<br />
inflows of resources from pension/<br />
OPEB, by source. 7 Each component<br />
unit government that issues standalone<br />
statements unit will also need to<br />
measure its pension/OPEB expense for<br />
the fiscal year, by adjusting the change<br />
in its net pension/OPEB liability during<br />
the year by the amounts of current<br />
year flows that are deferred into future<br />
periods and the amortization for the<br />
year of previously deferred resource<br />
flows. 8<br />
When the primary government<br />
prepares its entity-wide statements<br />
(which are the financial reporting<br />
entity’s overall financial statements),<br />
in note disclosures and RSI, it will<br />
reflect the amounts reported by the<br />
plan, in total as one plan, and will<br />
follow the requirements for a singleemployer<br />
plan or an agent plan, as<br />
appropriate. However, the net pension/<br />
OPEB liability, deferred resource flows<br />
from pension/OPEB, and pension or<br />
OPEB expense reported for (1) the<br />
primary government, including its<br />
blended component units, and (2) for<br />
each discretely presented component<br />
unit (DPCU) that is displayed<br />
individually, will be that employer’s (or<br />
group of employers’) proportionate share<br />
of the total. For DCPUs that are displayed<br />
in aggregate on the government-wide<br />
financial statements, the total of the<br />
included DPCUs’ proportionate shares<br />
will be reported.<br />
Exhibit 1 illustrates the way DB PEB<br />
liabilities and deferred resource flows<br />
balances should be measured and<br />
recognized in financial statements of<br />
a primary government (PG) and in the<br />
stand-alone financial statements of<br />
that PG’s component units. Exhibit 2<br />
similarly illustrates which kind of note<br />
disclosures, RSI, and notes to RSI should<br />
be reported with each of those set of<br />
financial statements.<br />
The table in Exhibit 3 uses an example<br />
to summarize this financial reporting<br />
information and serves as a summary<br />
for much of this article.<br />
But before we move on from this<br />
topic, it’s worth mentioning a closely<br />
related matter. GFOA’s Certificate of<br />
Achievement for Excellence in Financial<br />
EXHIBIT 1 | AMOUNTS REPORTED IN STATEMENTS OF NET POSITION<br />
City (Entity-Wide) Financials<br />
Stand-Alone Financials<br />
Library<br />
(DCPU)<br />
Proportionate share<br />
PG (City<br />
and library)<br />
Library<br />
(DCPU)<br />
Proportionate shares<br />
in respective columns<br />
School<br />
(BCU)<br />
Proportionate share<br />
60
EXHIBIT 2 | NOTE DISCLOSURES, REQUIRED SUPPLEMENTARY INFORMATION (RSI), AND NOTES TO RSI<br />
City (Entity-Wide) Financials<br />
Stand-Alone Financials<br />
Library<br />
(DCPU)<br />
Cost sharing plan<br />
PG (City<br />
and library)<br />
Library<br />
(DCPU)<br />
One single employer plan<br />
School<br />
(BCU)<br />
Cost sharing plan<br />
Reporting accepts applications for<br />
and reviews annual comprehensive<br />
financial reports (ACFRs) prepared for<br />
reporting entities that are less than<br />
a whole government, if the reporting<br />
entity is accounted for separately<br />
from the rest of the government in one<br />
or more individual funds. For these<br />
reports, if governments allocate PEB<br />
liabilities to the reported fund(s), we<br />
require that the government’s PEB<br />
liabilities and deferred resource flows<br />
from pension/OPEB are allocated to<br />
the reporting entity following the<br />
same approach discussed in this<br />
article, and the appropriate note<br />
disclosures and RSI-like tables and<br />
notes to those tables, as if it too were a<br />
participant in a cost-sharing plan.<br />
Watch this space for other Inside<br />
Stories discussing other topics<br />
related to activities internal to a<br />
financial reporting entity or with<br />
related parties, such as accounting<br />
for certain complex financial activity<br />
with blended component units and<br />
joint ventures.<br />
Michele Mark Levine is director of<br />
GFOA’s Technical Services Center.<br />
Todd Buikema is the assistant director<br />
of communications for the Technical<br />
Services Center. Susannah Filipovic is<br />
manager of technical accounting for the<br />
Technical Services Center.<br />
EXHIBIT 3 | EXAMPLE SUMMARY TABLE<br />
Assumption: A City and its component units, a library and a school, provide defined benefit pensions<br />
through one trusted single-employer plan. The library is a discretely presented component unit (DPCU)<br />
and the school is blended component unit (BCU) of the City, which is the primary government (PG).<br />
In these<br />
financial<br />
statements:<br />
City (financial<br />
reporting<br />
entity-wide)<br />
Stand-alone<br />
Stand-alone<br />
Prepared for<br />
this entity:<br />
City<br />
Library, a<br />
DPCU of the<br />
City<br />
School, a<br />
BCU of the City<br />
1<br />
For authoritative guidance on defining a financial reporting<br />
entity, see GASB Cod. Sec. 2100.<br />
2<br />
For complete guidance on employer accounting for definedbenefit<br />
pension and other postemployment benefits (OPEB)<br />
provided through trusted plans, see GASB Cod. Sec. P20 for<br />
pension plans and P50 for OPEB plans. The content in this<br />
article is highly abridged and interpreted and should not be<br />
solely relied by governments in accounting for and reporting<br />
postemployment benefit obligations.<br />
3<br />
Accounting and financial reporting by governmental<br />
employers’ contributions to cost-sharing multiple-employer<br />
plans that that have no predominant state or local<br />
government employer (such as tradespeople’s union-run<br />
ERISA plans), are excluded from this discussion. The criteria<br />
for identifying this type of plans are found in GASB Cod.<br />
Sec. P20. 112, and the financial reporting and disclosure<br />
requirements are found in Cod. Sec. P20.227-.232.<br />
The Statement of Position<br />
will report pension<br />
liabilities and deferred<br />
resource flows in the<br />
amount of:<br />
• Proportionate shares for<br />
City (PG) and School (BCU),<br />
in the PG columns, and<br />
• Proportionate shares for<br />
Library in DCPU column<br />
Proportionate shares for<br />
library<br />
Proportionate shares for<br />
school<br />
4<br />
GASB Cod. Sec. P20.117, P20.707-1 – .707-3.<br />
5<br />
This discussion assumes there are no nonemployer contributors<br />
on behalf of any of the employers within the financial reporting<br />
entity. For a complete explanation of the proportionate share<br />
calculations when there are nonemployer contributors, both for<br />
those nonemployer contributors in special funding situations<br />
and those that are not, see GASB Cod. Sec. P20.114-.115, .148a.,<br />
and .185-.193.<br />
6<br />
These formulas are adapted from those required of employers<br />
in cost sharing plans, found in GASB Cod. Sec. P20.148.<br />
7<br />
If an individual employer’s proportionate share, as discussed<br />
below, changes between measurement dates the net effect<br />
of the change would be measured as discussed in GASB Cod.<br />
Sec. P20.154, and would be accounted for as an additional<br />
deferred inflow of resources or deferred outflow of resources,<br />
as appropriate.<br />
8<br />
GASB Cod. Sec. P20.707-1.<br />
Note Disclosures, required<br />
supplementary information<br />
(RSI) and notes to RSI will<br />
be prepared based on the<br />
requirements for:<br />
A single-employer plan,<br />
using the total amounts<br />
for the plan<br />
A cost-sharing plan, using<br />
the library’s proportionate<br />
share of the plan amounts<br />
A cost-sharing plan, using<br />
the school’s proportionate<br />
share of the plan amounts<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 61
IN PRACTICE | PERSPECTIVE<br />
PERSPECTIVE<br />
The Importance of Protecting<br />
Auditor Independence<br />
BY KATHERINE BARRETT AND RICHARD GREENE<br />
At a time when trust in<br />
government is a fragile<br />
commodity, the role of<br />
state and local government<br />
auditors has become<br />
even more important. These people,<br />
whether through auditing financial<br />
records, creating reports, or providing<br />
analysis on internal controls, can help<br />
support goals to build trust with the<br />
community. As Kymber Waltmunson,<br />
auditor for King County,Washington,<br />
said, “I have always felt that a primary<br />
goal of my work is to help promote<br />
trust in government, showing people<br />
that there’s a watchdog out there<br />
looking out for the public’s interest.”<br />
But for auditors to be able to<br />
accomplish this goal, they must be<br />
able to function independently, free<br />
from interference by outside forces<br />
in government. That’s why multiple<br />
attacks on auditor independence are<br />
such a significant issue. “Increasingly,<br />
truth, integrity, facts, and reality are in<br />
shorter and shorter supply,” said Josh<br />
Winfrey, director of the National State<br />
Auditors Association (NSAA). You must<br />
have someone you can trust, but for<br />
people to trust the results of an audit<br />
shop, it has to have independence.”<br />
Amanda Noble, auditor for the<br />
City of Atlanta, Georgia, said, “While<br />
I don’t have any hard data, it’s my<br />
impression as chair of the Association<br />
of Local Government Auditors’ advocacy<br />
committee that we may have seen an<br />
increase in threats over the past year,<br />
which is unexpected, given the relatively<br />
strong economy.”<br />
Carolyn Smith was the longest-serving<br />
auditor for Columbus City Schools, Ohio,<br />
when she confronted a threat to her<br />
independence that was intolerable to<br />
her. “We were doing an audit of building<br />
conditions, which had been approved by<br />
the board of education,” she explained.<br />
“And we intended to use a survey of people<br />
who worked in the schools to gather<br />
information. It was a sensitive topic at the<br />
time, because the teachers’ union had just<br />
gone out on strike, and one of the things<br />
they were concerned about were building<br />
conditions, like cleanliness and problems<br />
with the air conditioning system.”<br />
But the survey was attacked by the<br />
union that represents the district’s<br />
custodial staff, which felt that its<br />
©<strong>2023</strong> MICHAEL AUSTIN C/O THEISPOT.COM<br />
62
members were being blamed for the<br />
condition of the schools. Recalls Smith,<br />
“The union leadership reached out to the<br />
board, and the board president reached<br />
out to me to ask me to pull the survey back<br />
and not to discuss it. I was told that they<br />
were going to conduct an investigation. I<br />
kept trying to get information as to what<br />
was being investigated and asked if I<br />
was being targeted. The answer from the<br />
attorneys was that they wanted to be sure<br />
I had followed best practices. I viewed this<br />
as intimidation, particularly because of<br />
the discussion of an investigation into<br />
our work. I felt like if I had to walk on<br />
eggshells, how effective could I be? So, I<br />
gave notice.”<br />
For the last several years there have<br />
been numerous attempts on the part of<br />
the State of North Dakota Legislature to<br />
inhibit their auditor’s independence. None<br />
have been successful, but the attempts<br />
continue. The Legislature is pressing the<br />
auditor to stop producing press releases<br />
and to cut back on the transparency of<br />
its audits through social media and its<br />
website. “They want both the auditor’s<br />
social media outreach and the public<br />
disclosure on the website to go away,” said<br />
State Auditor Joshua Gallion. “But I argue<br />
that this stuff needs to be more readily<br />
available. Information needs to be out<br />
there and as timely as possible. It can’t<br />
just gather dust on a shelf.”<br />
The elected auditor continues to resist<br />
the Legislature’s pressure. “I’m exmilitary,”<br />
he says, “and I have no problem<br />
standing my ground.”<br />
Some communities, especially smaller<br />
ones like the cites of Palo Alto, California;<br />
Beverly Hills, California; and Glendale,<br />
Arizona; along with Snohomish County,<br />
Washington, have turned to contract<br />
auditors to take the place of appointed<br />
auditors. Experts in the field fear that this,<br />
too, can jeopardize the independence of<br />
the position as well as the quality of the<br />
work produced.<br />
The big question here is whether<br />
the individual or group hiring the<br />
consultant has a potentially hidden<br />
agenda pertaining to the audit results.<br />
If an auditor is working directly for the<br />
management whose performance is<br />
being evaluated, it’s hard to ignore the<br />
possibility that a consultant might put<br />
too great a priority on trying to please the<br />
people who are signing the contracts.<br />
“As trust in government declines, the auditor role is more<br />
important than it’s ever been.”<br />
Waltmunson said, “There are concerns<br />
that consulting firms cut corners and<br />
their primary interest is their bottom<br />
line rather than the quality of the work.<br />
They dilute the influence and the impact<br />
of the audit function as well as the<br />
independence of the work done.”<br />
This phenomenon is vividly illustrated<br />
by the experience of one former auditor<br />
in a large local government on the West<br />
Coast. “In 2022, after a year, I left the<br />
audit shop in which I was working to find<br />
some room for advancement,” the auditor<br />
recalled. “I moved to a consulting firm<br />
where I was working on anywhere from<br />
16 to 18 projects, mostly a mix of internal<br />
audits and performance audits.”<br />
Disappointing experiences quickly<br />
emerged. “Sometimes, for example, you’d<br />
go to do a broad assessment, which was<br />
supposed to be independent,” he recalls.<br />
“But you’d be trying to sell other products<br />
as well. There was a limited process for<br />
checking for independence. This was<br />
particularly true when we would report<br />
– Josh Winfrey, Director of the National State Auditors Association<br />
directly to someone in management<br />
for whom you might be doing the other<br />
work as well, as opposed to reporting to<br />
an independent body. If you’re working<br />
for management often, they didn’t<br />
want a critical audit. In consulting<br />
there was an implicit understanding<br />
that you really wanted to please<br />
the client, and that influenced the<br />
quality of the work. People would try to<br />
influence what you were saying. I was<br />
there for a year and recently left for a<br />
public sector entity.”<br />
Frequently, elected officials who<br />
aim to reduce auditor independence,<br />
either through contracting out or other<br />
means, cite budgetary reasons for their<br />
actions. But this is a short-sighted<br />
approach, particularly now. As Winfrey<br />
said, “As trust in government declines,<br />
the auditor role is more important than<br />
it’s ever been.”<br />
Katherine Barrett and Richard Greene<br />
are principals of Barrett and Greene, Inc.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 63
IN PRACTICE | PERSPECTIVE<br />
PERSPECTIVE<br />
Financial Intelligence through<br />
Artificial Intelligence<br />
BY JUSTIN MARLOWE<br />
Here’s a quick pop quiz:<br />
throughout <strong>2023</strong>, municipal<br />
bond investors were most<br />
upbeat about which city?<br />
An obvious guess is a<br />
AAA-rated city like Charlotte, North<br />
Carolina, or Columbus, Ohio. Or a growing<br />
but affordable hub like Oklahoma City,<br />
Oklahoma. Or a tech hub like Boston,<br />
Massachusetts.<br />
But in fact, the CMF Muni Index from<br />
the University of Chicago’s Center for<br />
Municipal Finance tells us the answer<br />
is…Chicago, Illinois. According to the<br />
data, the prices of Chicago general<br />
obligation bonds throughout <strong>2023</strong><br />
improved more than any other big city.<br />
Even more surprising is that the worst<br />
performer was San Francisco, California.<br />
Prices on its bonds fell more than any<br />
other big city during that same period.<br />
Why are investors so optimistic about a<br />
city that just earned back a BBB credit<br />
rating, but so pessimistic about a AAArated<br />
city with one of the strongest local<br />
tax bases in North America?<br />
Because in the municipal bond<br />
market, headlines matter. Chicago<br />
has made its required pension<br />
contributions for three consecutive<br />
years. Most local government chief<br />
finance officers would not call that<br />
an inspiring accomplishment, but it’s<br />
a welcome change for Chicago that’s<br />
enticed bond investors looking for a<br />
bargain. Meanwhile, the steady stream<br />
of bad news about San Francisco’s<br />
dying, crime-ridden downtown has sent<br />
many investors streaming for the exits.<br />
Critics of the municipal bond<br />
market say this type of reactive,<br />
news-driven, emotional investing<br />
is a chronic problem. When bad<br />
news swamps otherwise sound<br />
financial fundamentals, taxpayers<br />
suffer undeservedly through higher<br />
borrowing costs.<br />
And yet, we can’t blame municipal<br />
investors for trading on news when<br />
other meaningful information is<br />
so hard to find. Audited financial<br />
statements often arrive six or more<br />
months after the fiscal year ends.<br />
That’s a sharp contrast with the market<br />
for other fixed-income investments like<br />
corporate bonds, where investors have<br />
easy access to timely, frequent, digital,<br />
comparable financial information. Fair<br />
or unfair, that’s the quality of financial<br />
information many investors expect<br />
from municipal issuers.<br />
The challenge, then, is clear: how<br />
can the municipal market supply more<br />
financial information, in a fast and<br />
efficient way, about the enormous<br />
variety of issuer governments? Like<br />
many other challenges today, the first<br />
thought is artificial intelligence (AI).<br />
AI is the science of making machines<br />
that can think like humans. Since the<br />
November 2022 release of ChatGPT—<br />
one of the first large-scale AI tools made<br />
available to the public—AI has captured<br />
our collective imagination. More than<br />
any other technology today, it has the<br />
potential to transform our everyday<br />
lives. That’s why it’s no surprise that<br />
the federal government has asked for<br />
©<strong>2023</strong> DAVIDE BONAZZI C/O THEISPOT.COM<br />
64
a pause on new AI development, and<br />
GFOA has launched several initiatives<br />
to explore its potential across our<br />
profession.<br />
Some recent research from the<br />
University of Chicago’s Center for<br />
Municipal Finance zeroed in on the lack<br />
of financial information in the municipal<br />
bond market. Those researchers asked:<br />
can AI reliably summarize the narrative<br />
portion of local government financial<br />
statements? Municipal credit and buyside<br />
analysts sort through mountains of<br />
annual comprehensive financial reports<br />
(ACFRs) every day to find relevant<br />
information about a local government’s<br />
financial performance and fiscal health.<br />
This task seems like a good candidate<br />
for AI to scale up quickly and cheaply.<br />
To test this claim, these researchers<br />
focused on the two main narrative<br />
parts of local government annual<br />
comprehensive financial reports<br />
(ACFRs)—the Letter of Transmittal (LOT)<br />
and the Management’s Discussion &<br />
Analysis (MD&A). They first analyzed<br />
the LOTs and MD&As for the 50 largest<br />
U.S. cities across the past four years.<br />
They calculated their length, the<br />
level of education required to read<br />
them, and the number of words that<br />
convey “positive” sentiment (words<br />
like “able” or “accomplish”), “negative”<br />
sentiment (words like “abandon” or<br />
“abrogate”), and “uncertainty” (words<br />
like “ambiguous” or “anticipate”).<br />
Then they asked ChatGPT to<br />
summarize those same LOTs and MD&As<br />
and performed that same analysis<br />
on those summaries. Three main<br />
findings emerged from this exercise.<br />
First, ChatGPT is quite good at<br />
summarizing and simplifying these<br />
statements. The average MD&A is<br />
5,581 words long and requires the<br />
reading skill of someone with a Ph.D.<br />
The average ChatGPT summary of an<br />
MD&A is 535 words long and requires<br />
the reading skill of a typical college<br />
graduate. We see similar patterns in<br />
the LOTs and their summaries.<br />
Second, the summaries tell the same<br />
story as the originals, but with more<br />
clarity and emphasis. If an MD&A tells<br />
Investors do respond to the story that’s told in these<br />
narratives, but only if someone takes the time to read<br />
and summarize that story. For generations, that someone<br />
was a person. Going forward, that someone might be AI.<br />
a positive story, the summary tells<br />
a slightly more positive story. If a<br />
LOT conveys negative sentiment,<br />
the summarized LOT is slightly more<br />
negative. Of particular note is that<br />
negative sentiment is more likely<br />
to appear in longer statements—the<br />
proverbial “beat around the bush”<br />
approach to breaking bad news.<br />
ChatGPT eliminates the boilerplate<br />
language and superfluous words that<br />
often surround negative sentiment.<br />
Third, and perhaps most important,<br />
the summaries are salient. These<br />
researchers used a statistical<br />
technique known as an “event study”<br />
to see if the CMF Muni Index for<br />
an individual city responds to the<br />
sentiment conveyed in that city’s<br />
LOT or MD&A. The results show it<br />
does not; however, the results show<br />
that a city’s index does respond to<br />
the sentiment communicated in the<br />
summaries. In particular, prices on a<br />
city’s bonds tend to increase when the<br />
summarized LOT and MD&A convey<br />
more positive sentiment, and vice<br />
versa. All this suggests investors<br />
do respond to the story that’s told in<br />
these narratives, but only if someone<br />
takes the time to read and summarize<br />
that story. For generations, that<br />
someone was a person. Going<br />
forward, that someone might be AI.<br />
If the municipal market can<br />
produce this information at scale,<br />
all issuers will benefit. Moreover,<br />
these results suggest some obvious<br />
next questions for state and local<br />
finance practitioners. Can you<br />
rewrite your LOT and MD&A with<br />
an eye toward the most favorable<br />
AI-generated summary? How can<br />
local finance staff use AI to evaluate<br />
the financial performance of their<br />
peer jurisdictions? How might<br />
state auditors and other regulators<br />
use AI to summarize and better<br />
understand broad trends in local<br />
government financial health? The<br />
brave new world of AI is full of several<br />
challenges and opportunities.<br />
Justin Marlowe is a research professor at<br />
the University of Chicago, Harris School of<br />
Public Policy, and a fellow of the National<br />
Academy of Public Administration.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 65
IN PRACTICE | INTERVIEW<br />
WITH CHRIS FORSTER BY MIKE MUCHA<br />
Mike Mucha, GFOA’s deputy<br />
executive director, spoke<br />
with Chris Forster, the<br />
assistant town manager for<br />
the Town of Bluffton, South<br />
Carolina, about his path to a<br />
job in the public sector, the<br />
value of GFOA in his career,<br />
working for a growing<br />
community, and the<br />
importance of prioritizing<br />
professional development.<br />
Mike: Can you start by describing your<br />
current role with the Town of Bluffton?<br />
Chris: I am the assistant town manager,<br />
and I’m responsible for finance,<br />
human resources, municipal court,<br />
economic development, contracts<br />
and compliance, the Don Ryan Center<br />
for Innovation—which is the town’s<br />
business incubator—and diversity,<br />
equity, and inclusion. I also play a lead<br />
role in intergovernmental agreements,<br />
strategic planning, and policy<br />
development, and I work with the town<br />
manager on other townwide initiatives<br />
or leadership issues. The Town of<br />
Bluffton itself is a growing community,<br />
and with that comes the ability to work<br />
on unique projects.<br />
The town is growing faster than most<br />
places, isn’t it?<br />
It is. Before 2000, the population was<br />
less than 1,000, and the town covered<br />
less than 1 square mile. Bluffton is a<br />
very attractive area, a beautiful historic<br />
town with a welcoming culture that’s<br />
close to the beaches and near the City<br />
of Savannah, Georgia. We are the last<br />
mainland town before you reach Hilton<br />
Head Island. Growth was pretty fast,<br />
at first, but then slowed during the<br />
2009 financial crisis. Growth started to<br />
accelerate after the recession, and then<br />
it really exploded during COVID. We<br />
now have more than 38,000 residents<br />
and cover an area of 54 square miles.<br />
My family moved to Bluffton in 2019,<br />
and it’s a great place to live. I love that<br />
Bluffton still has a small town feel<br />
and that it’s near the water. I also grew<br />
up in a larger city, so it’s nice to have<br />
Savannah nearby, too.<br />
From a public finance perspective,<br />
does this type of rapid growth present<br />
challenges?<br />
Two major challenges include affordable<br />
housing and commercial development,<br />
both of which are direct consequences<br />
of our rapid growth. Just as I recognize<br />
the value of living in Bluffton, others<br />
do, too, and that demand has driven up<br />
property values. Overall, this is a pretty<br />
66
CLOCKWISE FROM LEFT: PHOTO COURTESY OF THE TOWN OF BLUFFTON; MARGARET PALMER / ISTOCKPHOTO.COM; JOHN WOLLWERTH / ALAMY<br />
affluent community, and for some of our<br />
longer-tenured residents, their property<br />
value has gone up to the point where<br />
they face a difficult decision: to sell for a<br />
profit or stay and struggle to afford living<br />
here. And like other towns, growth is<br />
not uniform. Buckwalter Parkway goes<br />
north and south through the middle<br />
of the community. Approximately 51<br />
percent of our residents live west of<br />
Buckwalter, but only 17 percent of our<br />
businesses are located there. When<br />
you have rapid population growth,<br />
commercial development can lag and<br />
leave areas that aren’t as well-serviced.<br />
How has the town handled this growth<br />
from a policy perspective?<br />
We have a few programs that encourage<br />
commercial development and affordable<br />
workforce housing. For example, we<br />
have incentives for service-based<br />
industries to locate in certain corridors.<br />
The town has grant programs that can<br />
assist with several development-related<br />
costs. The town also has a neighborhood<br />
assistance program that helps incomequalified<br />
residents with home repairs to<br />
help them remain in their homes.<br />
We’re also trying to take advantage of<br />
some of this growth and the surpluses<br />
that have resulted from an increased<br />
tax base. Historically, we have tried<br />
to be very conservative with revenue<br />
projections, especially around revenue<br />
that is more elastic. During the last<br />
few years, there have been dramatic<br />
increases in building permit revenue,<br />
most of which we didn’t really budget for.<br />
We recently passed a new reserve policy,<br />
and because of the surplus, we’ve been<br />
successful at building up our reserves.<br />
Our emergency reserve and unassigned<br />
reserves are 100 percent funded, and our<br />
capital asset reserve is growing.<br />
You mentioned that you recently passed<br />
a new reserve policy, and I would like<br />
to highlight for everyone that the<br />
Town of Bluffton won GFOA’s 2022<br />
Award for Excellence for the work done<br />
to implement the new reserve policy.<br />
Thanks. After winning, we’ve done a<br />
few presentations for GFOA and at other<br />
conferences. In the presentations I<br />
usually talk about how when we started<br />
seeing surpluses, we had a council<br />
member who inquired about reducing<br />
taxes. That spurred debate over whether<br />
it would be better for our community<br />
to reduce taxes or work on building<br />
reserves to better promote financial<br />
sustainability. We researched GFOA’s<br />
best practices and used other resources<br />
from GFOA that recommended a<br />
policy based on the unique risks our<br />
community faces. With our proximity<br />
to the coast, we have an elevated risk<br />
of natural disasters. Using data on<br />
hurricane risk, we were able to craft a<br />
policy that sets an appropriate level of<br />
reserves to face that risk.<br />
Any updates on the reserve policy or<br />
notable interactions since the town<br />
was highlighted?<br />
In addition to the presentations, a few<br />
other cities have reached out to get<br />
advice on their process. One piece I find<br />
interesting is that almost all wanted<br />
help with handling the staff and council<br />
conversations around implementing<br />
the policy. It seems like the challenge<br />
for most is not on the technical side but<br />
instead in how you communicate it.<br />
The other notable event is that we<br />
recently went through a rating review.<br />
Located halfway between Hilton Head Island and Savannah, Georgia, the Town of Bluffton has experienced rapid population growth in<br />
recent years. Bluffton’s population has increased about 40% since 2020, making it one of South Carolina’s fastest growing municipalities.<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 67
IN PRACTICE | INTERVIEW<br />
We have been an AA-rated community,<br />
but after multiple conversations with the<br />
rating analyst, we were upgraded to AAA.<br />
In the analysis, the rating agency noted<br />
our strong management framework and<br />
financial policies—both referencing our<br />
process for implementing the reserve<br />
policy.<br />
Let’s take a step back and talk about<br />
how you ended up in Bluffton. Before<br />
taking your current position, you worked<br />
for three other very different types of<br />
government. Is this the career path you<br />
were expecting when you got into public<br />
finance?<br />
Oh no. Not at all. Honestly, until my senior<br />
year of undergrad at the University of<br />
Connecticut, I had no idea what I wanted<br />
to do. I was walking through the student<br />
union, and someone asked if I wanted to<br />
sit in on a session to learn more about the<br />
MPA program. At the time, I knew nothing<br />
about a Master of Public Administration.<br />
I ended up applying and getting in, and<br />
while working toward my MPA, I really<br />
fell in love with government. I focused<br />
on financial management and could see<br />
myself being a CFO for a large city.<br />
After graduating, I ended up in<br />
Oklahoma because my wife was in a<br />
veterinary program at Oklahoma State<br />
University. I started as a financial<br />
analyst with the City of Tulsa, Oklahoma,<br />
in 2008, and soon after, the city had to<br />
make cuts because of the recession. As<br />
we went through the budget cuts, my<br />
role expanded, and I was able to take<br />
on more responsibilities. Eventually I<br />
was recruited by the city public works<br />
director to be the fiscal services officer<br />
in that department, where I coordinated<br />
all financial services and budgeting.<br />
The former auditor for the city was then<br />
appointed by the governor of Oklahoma to<br />
be the secretary of finance, and I moved<br />
over to the state to help lead consolidation<br />
of IT services and IT infrastructure.<br />
After we made significant progress on<br />
Clockwise from top left: Chris accepts the<br />
Town of Bluffton Award for Excellence in<br />
2022; Chris with former Massachusetts<br />
Governor Deval Patrick; Chris makes<br />
presentation in front of Town Council; Chris<br />
and his wife, Jessica at the <strong>2023</strong> Hilton Head<br />
Island-Bluffton Chamber of Commerce Ball;<br />
and Chris attending dinner for Kennedy<br />
School of Government at Harvard University.<br />
68
shared services for IT, we started doing<br />
the same for financial services.<br />
Eventually, I applied for a position<br />
back in Connecticut as the budget<br />
director with Connecticut State Colleges<br />
and Universities (CSCU). I didn’t get<br />
that job, but they had another opening<br />
that I took, as the controller. They<br />
were looking to take on a consolidation<br />
project, and I was able to leverage my<br />
experience from Oklahoma. After six<br />
years back in Connecticut, my wife and<br />
I were ready to relocate to avoid winters<br />
in the northeast. I actually found the<br />
Bluffton job post on GFOA’s website. I<br />
didn’t know anything about Bluffton,<br />
but I started researching the town and<br />
saw they were growing. After working<br />
my entire career in organizations that<br />
were in constant fiscal stress and making<br />
cuts, this was the type of opportunity<br />
that I needed, and we made the move.<br />
That’s an interesting change of<br />
environment. What were you able<br />
to take from your experience in<br />
Oklahoma and Connecticut that has<br />
led to success in South Carolina?<br />
The 1990s were boom times. Many<br />
governments were going through<br />
expansion of services. Revenues were<br />
good. However, in my opinion, there<br />
wasn’t a lot done to plan for bad times.<br />
Bluffton was definitely growing, and<br />
I wanted to be able to help guide and<br />
build the community in a way that<br />
would lead to sustained success.<br />
Share any differences you’ve found<br />
between working for a state, college<br />
system, or local government.<br />
The dynamics are mostly the same. There<br />
are more people in larger governments,<br />
and the financial statements have<br />
bigger numbers. In each place, I think<br />
my success has been based on an ability<br />
to establish relationships and adapt—<br />
although I’m not trying to imply that<br />
everything always went well. When I<br />
was with the State of Oklahoma, I was<br />
able to accomplish a lot in a short period<br />
of time. The two consolidation projects<br />
were successful by most metrics. We<br />
met timelines, and I expected the same<br />
model to work at CSCU. However, I wasn’t<br />
ready for the union environment. I<br />
was naïve and not able to make quick<br />
progress. It was a humbling experience,<br />
and one I definitely learned from. I had<br />
to be more sensitive to many different<br />
stakeholders. The college environment<br />
favored decision by committee. Not<br />
that this approach was better or worse,<br />
but different. Ultimately, I think that<br />
helped with my experience when I<br />
started in Bluffton, and it put me in a<br />
better place to work with our elected<br />
officials and other department heads.<br />
What you said about relationships is<br />
consistent with stories we’ve heard<br />
from others, and one reasons GFOA<br />
has focused resources on helping<br />
finance officers work better with<br />
their colleagues from across the<br />
organization. When and how did<br />
you first get involved with GFOA?<br />
I learned about GFOA during my MPA<br />
program. The University of Connecticut<br />
had a course centered on the Certified<br />
Public Finance Officer (CPFO) program<br />
and brought in Alan Desmarais, who<br />
was finance director for the Town of<br />
Manchester. I was also encouraged<br />
to apply for a scholarship—which I<br />
received—through the Connecticut<br />
GFOA. That opened my eyes to what<br />
was possible in local government. In<br />
trying to learn more, I got familiar<br />
with GFOA’s website resources, which<br />
were available for free. When I joined<br />
the City of Tulsa, I didn’t become a<br />
member initially because the city<br />
wouldn’t pay for membership for<br />
entry-level staff. I thought it would be<br />
helpful to my career, though, so I made<br />
the decision to pay on my own. I also<br />
joined the CPFO program and was able<br />
to earn the certification. I’m glad I took<br />
this on early in my career and earned<br />
the CPFO when I was 28 years old.<br />
GFOA’s Certified Public Finance Officers<br />
(CPFO) program is designed to prepare<br />
individuals for leadership positions in<br />
state and local governments by enhancing<br />
fundamental skills and increasing<br />
knowledge of best practices and<br />
standards in public finance. Learn more:<br />
gfoa.org/cpfo<br />
Do you feel like the CPFO has<br />
been helpful in your career?<br />
Absolutely. Early on, hiring managers<br />
would ask about it. Some didn’t know<br />
what it was, but once I explained it, it was<br />
clear they understood the value. Outside<br />
of helping me get jobs, it has made me<br />
a more well-rounded finance officer.<br />
Like many others, you were able to move<br />
up to an assistant town manager position<br />
from a finance background. Do you think<br />
finance officers have any advantages<br />
in this position, and do you think the<br />
CPFO program would help others who<br />
don’t have a finance background?<br />
I’ve heard from others that<br />
understanding finance issues is<br />
critical for being a town manager. I<br />
have finance experience, and in some<br />
ways might even take it for granted. I<br />
see how the position could be difficult<br />
if you didn’t have a solid understanding<br />
of budgeting and accounting. So much<br />
of what we do depends on being able to<br />
prioritize resources and ensure that<br />
we are using our funds effectively.<br />
Understanding finance is not easy,<br />
though. I think someone without a<br />
background in finance would find<br />
the CPFO program challenging, but<br />
definitely a good learning experience.<br />
You have also participated in many<br />
other educational programs since<br />
your career started. How have those<br />
experiences affected your career?<br />
I enjoy learning and feel that anything<br />
you can do to develop as an individual is<br />
beneficial to the organizations you are a<br />
part of. I believe that the extra learning<br />
experiences I have had provide a way<br />
for me to stand out. For some positions,<br />
a bachelor’s degree is pretty standard.<br />
For local government finance officers,<br />
it seems like just about everyone has<br />
earned a master’s degree. I’m naturally<br />
thirsty for more information and<br />
knowledge. At one point, I looked into<br />
getting a PhD in public administration but<br />
decided against it. Ultimately, I thought<br />
I would be better served finding more<br />
strategic opportunities to develop skills.<br />
I have benefited from GFOA’s Advanced<br />
Government Finance Institute (now<br />
called the GFOA Leadership Academy).<br />
This program really helped me<br />
understand the need to transition from<br />
DECEMBER <strong>2023</strong> | GOVERNMENT FINANCE REVIEW 69
IN PRACTICE | INTERVIEW<br />
the technical side of finance to more of<br />
a leadership role. When I got involved<br />
with state government, GFOA was<br />
less prevalent there, so I got involved<br />
with the Association of Government<br />
Accountants and earned their certified<br />
government financial manager (CGFM)<br />
designation. Now that I’m focused more<br />
on city management, I’ve been pursuing<br />
more leadership training and am close<br />
to earning ICMA’s certified manager<br />
designation. I’m also just about done<br />
with the senior executive program at<br />
the Kennedy School of Government at<br />
Harvard.<br />
That is impressive. How do you find time<br />
to take the training?<br />
You need to make it a priority. Like I said<br />
before, I believe strongly that ongoing<br />
professional development makes our<br />
organizations stronger. I see others<br />
making excuses for not taking advantages<br />
that may be available. The reality is<br />
that there will always be something.<br />
Budget season is starting, the auditors<br />
will be onsite, or there are too many staff<br />
vacancies. If you’re looking for the perfect<br />
situation, there will never be enough time<br />
to fit in professional development. It’s<br />
important to realize that building skills<br />
is valuable and not attending the training<br />
means you are missing out.<br />
When I worked for the City of Tulsa, my<br />
passion for city government developed<br />
and I had a desire to learn, but I found<br />
it frustrating that budget cuts made it<br />
difficult to take classes. In government<br />
we don’t get a bonus, but one perk can<br />
be the ability to attend professional<br />
development opportunities—although<br />
my experience was that when the budget<br />
got tight, professional development was<br />
always the first to go. I vowed that when<br />
I got into a leadership position, it would<br />
be the last to go, not the first.<br />
During COVID, we did have to cut the<br />
budget and restrict out-of-state travel,<br />
but we kept the budget for in-state<br />
professional development. Virtual<br />
options also became popular at that<br />
time. Having those definitely helped<br />
us develop solutions for our challenges<br />
and led to the team we have now. When I<br />
started as finance director in Bluffton, I<br />
wanted to make sure that everyone in the<br />
department understood the importance of<br />
ongoing education. The department didn’t<br />
have professional development budgeted<br />
for everyone, but now every member of<br />
the finance department has resources to<br />
attend training.<br />
You said at some point in your career<br />
you realized that you needed to focus<br />
more on leadership development and<br />
less on technical training. I know that<br />
other finance officers struggle with this<br />
balance. Can you say more about how<br />
you approached the situation?<br />
For me, there was a natural shift in my<br />
career. As I moved into a new position<br />
it was clear that I needed to pick up new<br />
skills. Looking back now, I think it’s<br />
essential that leaders recognize the need<br />
to focus on leadership skills. Some of the<br />
more unsuccessful leaders I’ve worked<br />
with held onto the technical aspects of<br />
their jobs for too long. I understand that<br />
there can be comfort in continuing to<br />
build your technical skills, but I think<br />
the lack of leadership focus led to lower<br />
morale and higher turnover.<br />
For finance officers, it seems like there<br />
is a desire to try to know everything. I<br />
think it’s OK if people who work for me<br />
learn things that I don’t know. The role of<br />
a leader is to find the right people. I think<br />
the test of any leader is if you can remove<br />
yourself and still have the organization<br />
move forward.<br />
For finance officers who may not<br />
have access to formal education on<br />
leadership, what do you recommend for<br />
building skills?<br />
In each place that I have worked, I have<br />
been fortunate to have a mentor whom<br />
I could work with and who would offer<br />
suggestions. One mentor who had an<br />
influence on me was Alex Petit, state CIO.<br />
When I worked for the State of Oklahoma,<br />
I came in knowing I was going to be the<br />
finance officer. I knew the technical role<br />
and processes. Ultimately the biggest<br />
obstacle to starting implementation of<br />
IT consolidation and shared services<br />
revolved around contracts and budget;<br />
this forced me into more of a change<br />
leadership role. Alex pushed me to get<br />
involved and help solve those problem<br />
areas. In my mind, this job was different.<br />
One day we were talking, and I was<br />
commenting on all the things that we<br />
now needed to do and how I, as finance<br />
officer of the IT division, didn’t have the<br />
authority or influence in the organization<br />
to make it happen. He looked at me<br />
and said, “Authority is out there lying in the<br />
hallway. Go pick it up.” What he was telling me<br />
was that official authority really didn’t matter.<br />
Leadership matters, and he needed me to tap<br />
into a different skillset. I then took a different<br />
approach to how I worked with the agency<br />
leaders. It was a turning point in my career.<br />
As a leader, what type of person do you look<br />
for when hiring to join your team?<br />
In every hiring process, I will in some way try<br />
to evaluate and vet experience and technical<br />
competency. What I think sets people apart,<br />
however, is their attitude. Do they have<br />
a positive outlook? Will they be part of a<br />
cohesive team? In any organization, mistakes<br />
will happen. We will face challenges. I value<br />
people who come to the table with solutions<br />
rather than complaints and are committed<br />
to working through problems. To do that, the<br />
positive attitude is essential.<br />
Wrapping up our interview, do you have a<br />
favorite book on leadership?<br />
I’ll give you two. Good to Great, by James C.<br />
Collins (HarperCollins, 2001) or Leadership on<br />
the Line, by Ronald Heifetz and Marty Linsky<br />
(Harvard Business Review Press, 2017)<br />
Any speakers or instructors who have<br />
been memorable?<br />
I got certified in Lean process improvement<br />
and took several classes from Fred Shamburg<br />
(founder and president of Leanovations).<br />
He had a deep understanding of subject<br />
matter, but what set him apart was his ability<br />
to relate it to the practical challenges I was<br />
facing in government. This was pivotal for me.<br />
Looking back on your career, do you ever<br />
think about what you would be doing<br />
now if you hadn’t happened to be in the<br />
right place at the right time to join the info<br />
session on Connecticut’s MPA program?<br />
I was getting a degree in economics,<br />
so probably somewhere in that field.<br />
Maybe in insurance.<br />
And the last question—for most of us,<br />
including those in Oklahoma and Connecticut,<br />
fall is over, and temperatures are getting<br />
colder. Now that you’ve been in South<br />
Carolina for four years, is there anything<br />
you miss about winter?<br />
Ha. Actually, I always enjoyed the first<br />
snowfall of the year.<br />
Mike Mucha is the deputy executive<br />
director of GFOA.<br />
70
Subscribe today at<br />
gfoa.org/gaafr-plus
10 STEPS<br />
TO IMPLEMENTING POSITION CONTROL<br />
One of the best ways to make sure departments aren’t overspending on<br />
personnel costs is to implement position control, which is a series of linked<br />
processes ensuring that the characteristics of the positions being filled<br />
(such as title, salary or wage, grade and step, and so on) match what is<br />
authorized in the budget and that the number of authorized positions isn’t<br />
exceeded. Here is a quick checklist to help you develop a position control<br />
system for your organization.<br />
1<br />
Determine the total number<br />
of positions you have in your<br />
organization. Identify the job<br />
that each employee has. For scenarios<br />
where multiple employees perform<br />
the same job, you will create multiple<br />
positions (one for each person) so<br />
ultimately employees fill positions in a<br />
1:1 ratio. In some rare scenarios,<br />
employees with two very different<br />
part time jobs may have 2 positions.<br />
2<br />
Create<br />
a unique position<br />
ID for each position. Each<br />
unique position ID can then<br />
track information appropriate for the<br />
position including department,<br />
funding source, title, and FTE limit<br />
along with other attributes.<br />
3<br />
Group<br />
similar positions into<br />
“job classifications.” To<br />
help manage positions,<br />
group similar positions (like budget<br />
analysts, police officers, laborers, HR<br />
specialists, etc.) into classifications.<br />
All positions in a similar classification<br />
would share certain attributes like<br />
benefit options and pay ranges.<br />
4<br />
Establish a central listing of<br />
all positions. The position<br />
listing should include current<br />
information on the position including<br />
whether it is budgeted and filled for all<br />
positions in the entire organization,<br />
including full-time and part time positions.<br />
If filled, you should identify the employee<br />
in the position.<br />
5<br />
Check<br />
to ensure compliance.<br />
When implemented,<br />
organizations should check to<br />
ensure that salaries are consistent with<br />
position limits. Going forward, approval<br />
processes for new or promoted<br />
employees should check to exceed that<br />
FTE limits or pay ranges are not exceeded.<br />
6<br />
Commit<br />
to keeping the position<br />
control list updated. The<br />
position control list should<br />
always be kept current. Organizations<br />
should develop clear processes for adding<br />
new positions or modifying positions so<br />
the centralized position control list is<br />
always current. When developing a budget<br />
for the next year, ensure that any changes<br />
to positions are reflected.<br />
7<br />
Develop a process for modifying<br />
positions. From time to time,<br />
positions will need to be reclassified<br />
or specific information on a position will<br />
need to be updated. Often, the Human<br />
Resource Department will implement a<br />
specific process to ensure that positions are<br />
paid fairly, promote internal equity, and<br />
accurately reflect current work being done.<br />
8<br />
Determine<br />
who will manage<br />
the position control structure.<br />
While Finance, Human Resources,<br />
and Budget all have an important stake in<br />
position control, the organization should<br />
define one group to serve as primary owners<br />
of the position control responsibilities.<br />
9<br />
Decide<br />
if your organization will<br />
allow “over-filling” of positions.<br />
It can be a good idea to hire a new<br />
candidate before the incumbent has officially<br />
vacated the position, allowing for training<br />
time. Establish rules for the types of<br />
positions that qualify for over-filling and how<br />
long the new candidate and the incumbent<br />
can overlap.<br />
10<br />
Consider implementing the<br />
position control structure<br />
into your ERP system.<br />
Modern systems provide functionality for<br />
managing position control to automate<br />
controls and track any changes to positions<br />
or the employees filling each position.<br />
Modern systems also provide tools to help<br />
with budgeting for positions, including<br />
adding new positions and applying various<br />
salary forecasting scenarios.<br />
72
Building up up up up your<br />
your your<br />
infrastructure? Start<br />
Start<br />
by by by by knocking down<br />
down<br />
your your financing costs.<br />
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